Britain's largest building society Nationwide saw a 40 per cent drop in home loans over the past year and its market share shrank, as the credit crunch forced it to rely on savings to fund mortgage lending.

Nationwide, which became Britain's second-largest mortgage lender after its merger with Portman last year, said residential lending fell to £6.7 billion (€8.40 billion) in the year to April, from £11.2 billion - a market share of 7.1 per cent.

That compares with an 11 per cent slice of the UK market in the previous year and Nationwide's "natural" share of 10-11 per cent, chief executive Graham Beale said yesterday. Its share of prime home loans dropped to 5.2 per cent from 9.2 per cent.

"Until we are confident we have normality back in the market place, in terms of our ability to fund comfortably, we will continue to run on a cash flow model, so we will continue to moderate our lending activities," Mr Beale told reporters after the company released its annual results. "If we are in seven per cent (market share) territory, we would not be uncomfortable with that in current market conditions."