Nationwide cautioned investors about rocky trading conditions in the UK mortgage market, as decreased one-off gains from its home loan division led to a 10% decline in profits for the six months ending on 30 September.
The largest building society in Britain said that although demand for mortgages in the half had been "strong", fears that intensifying competition in the mortgage market could impact the group's lending activity led it to reaffirm its somewhat cautious forecasts for its full-year results.
The lender also warned that the slow rate of growth in the economy as a whole looked likely to carry over into the housing market.
However, it noted that after uncertainties relating to the UK's departure from the European Union had calmed down, both would likely begin to pick up the pace.
Nationwide's chief executive Joe Garner said, "Competition in the mortgage market remains intense, and shows no sign of abating. Although mortgage volumes remain strong, we're prepared for the possibility that intense competition combined with declining consumer confidence may lead to a moderation in gross lending and market share in the second half of the year."
Although Nationwide reported a 4.5% increase in its net interest income, thanks to lower funding costs, the firm watched its mortgage margins contract, expecting that they would continue to do so as the year progressed.
"Competition in retail lending markets remains intense and has resulted in more borrowers switching to competitively priced products," it said. "Consequently we expect our reported margin to trend lower during the second half of the year and into 2018/19."
Overall, pre-tax profits fell to £628m from the £696m it posted at the same time a year earlier and although deposit balances rose £1.8bn in the half, that figure was markedly less than the £4.7bn added to Nationwide balances in 2016.
Garner said there were "signs of a squeeze on household finances from low wage growth and above-target inflation."
"Our member panel tells us people are beginning to cut back, particularly on savings and discretionary expenditure, which is not surprising when real incomes are falling," he added.