Britain's biggest building society, the Nationwide, has slashed mortgage lending and says it expects house prices to continue to fall in 2009/10.Its comments came as it said underlying pre-tax profits for the six months to 30 September were down 18% to £322m.Its bad debts rose to £74m, up from £62m last year, as borrowers struggled with their repayments.Net residential mortgage lending was under a third of the total of the same period a year ago, it said.Nationwide said it expected the housing market to remain "subdued", with prices continuing to fall in 2009/10.However, it said the recent interest rate cuts would help to minimise payment problems and reduce the "payment shock" to mortgage holders reaching the end of existing deals.

Our resilience proves that the building society business model can be particularly effective during turbulent market conditions

Graham Beale, Nationwide chief executive

It also said that falling house prices would "improve affordability, which should bring about a recovery in the first time buyers' market".The prediction on prices echoes comments by chief executive Graham Beale in September when he also said prices could fall 25% from their peak which implied an estimated 2.5 million homeowners could face negative equity.Nationwide said its net residential mortgage lending during the period was £1bn, down from £3.6bn in the same period last year after it cut back on its lending.Mortgage arrearsNationwide said it written down the value of assets by £416m during the half-year period.Mr Beale, said the society had delivered a "solid performance" in a difficult market."Our resilience proves that the building society business model can be particularly effective during turbulent market conditions," he said.Nationwide said its mortgage business was healthier than many of its rivals. It said 0.4% of its residential mortgage holders were more than three months in arrears with their repayments - compared with the industry average of 1.33%.Like many other financial institutions, the Nationwide has been hit by the global financial crisis. It has had to write-off £3m because of Lehman Brothers bankruptcy, and £34m due to the failure of Washington Mutual.The society said during the second half of the year, it expected to make further provisions to cover its £19m exposure to Icelandic banks.Nationwide's half-year profits were also hit by the costs of its 2007 takeover of the smaller Portman building societyIn September this year, the Nationwide said it was taking over the Derbyshire and the Cheshire building societies after the two ran into financial difficulties.