SOARING demand for mortgages fuelled by the UK housing boom helped Nationwide post a 21 per cent rise in annual profits yesterday.

Britain's biggest building society said net mortgage advances grew 81 per cent to a record £13.2bn as it continued to capture business from rival lenders.

It overtook Barclays Bank to become the fourth largest mortgage lender in the UK during a year in which pre-tax profits rose to £426.8m.

The rebound in lending comes two years after Nationwide's share of the mortgage market slumped to 3.1 per cent in the wake of the decision to offer the same rates to existing customers that it gave to new ones.

This meant scrapping the discount rates for new customers which were traditionally used to entice them to borrow from Nationwide.

Chief executive Philip Williamson said the "outstanding" results proved building societies could price products fairly and still generate a healthy level of profit.