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Nationwide, Britain's biggest building society, saw first half profits fall by two-thirds and warned it expects the second half to be worse.

"The continuation of ongoing margin compression and exposure to both retail and commercial impairment charges which we do not expect to abate significantly in the short term means that we expect profitability in the second half to be lower than that achieved in the year to date," chief executive Graham Beale said.

"Looking ahead we expect the remainder of this year and next to present a very difficult trading environment. Economic recovery is forecast to be slow and we expect interest rates to remain at their current level until at least the fourth quarter of 2010," he added.

"We are also cautious on future prospects for the housing market. The growth in house prices over recent months appears to be driven by lack of supply, and growth in unemployment throughout 2010 will inevitably exert downward pressure on house prices."

Underlying pre-tax profits fell to £117m in the six months to September, with the figures hit by a four-fold rise in impairment charges to £317m from £74m last year due mostly to its commercial property portfolio. Weaker lending returns from low interest rates also knocked profits.

Impairments on commercial property loans rose by nearly a quarter to £180m over the past six months, though residential mortgage lending arrears held steady at 0.66% of the loan book, but that figure will rise it cautioned.

"We expect impairment charges on residential loans to rise from the current relatively benign level," he said, which will also reflect the acquisitions of the troubled Dunfermline building society earlier this year and takeovers of the near-bust Derbyshire and Cheshire building societies in 2008.