* Underlying profit rises 117 percent to 263 million pounds
* "Natural correction" of UK house prices to continue -CFO
* Brits made 6.9 billion online banking transactions in 2013 -data (Adds comments from finance director, background, BBA data)
By Clare Hutchison
LONDON, Aug 18 Nationwide Building Society , Britain's biggest customer-owned lender, more than doubled its first-quarter profit, helped by improvements to its balance sheet, it said on Monday.
Nationwide, Britain's third-largest mortgage lender and second-biggest provider of saving products, also said it expected house prices to continue to moderate over the medium term, after showing strong growth earlier in the year and prompting fears of a bubble.
Underlying profit of 263 million pounds ($440 million) in the three months to June 30 was up 117 percent against the same period last year.
Profitability at Nationwide has been steadily improving over the last two years, after it repriced maturing longer-term fixed rate mortgages onto higher current market rates, which boosted margins, Group Finance Director Mark Rennison told Reuters.
It has also seen a moderation in impairment charges after reducing its exposure to some commercial real estate, a "big issue" for the lender, Rennison said.
It now has a core capital ratio of 16.3 percent and leverage ratio of 3.7 percent, ahead of a target set by Britain's financial regulator.
As well as deleveraging, Nationwide has been seeking to challenge the dominance of Britain's five biggest banks, wooing customers disillusioned by scandals including the mis-selling of loan insurance and the rigging of benchmark interest rates.
It has been offering interest of 5 percent a year on some accounts and has won customers from rivals as a result of new rules making it easier to switch accounts.
The mutual society, which is targeting 10 percent market share, said it accounted for 6.4 percent of the current account market in the first quarter, up slightly from 6.2 percent. Member deposits increased by 1.5 billion pounds to 132 billion pounds.
The big five of Lloyds Banking Group, Royal Bank of Scotland, Barclays, HSBC and Santander UK control about 80 percent of the market for personal current accounts.
HOUSE PRICE CORRECTION
Data released on Monday by property website Rightmove showed a prediction made by Nationwide Chief Executive Graham Beale in May for a cooling of house prices in London over the summer had been borne out.
After soaring earlier in the year, asking prices in London fell for a third month, dropping nearly 6 percent between July and August. Across the UK, prices of property coming onto the market fell by 2.9 percent from July.
Rennison said a natural correction from the strong growth in prices at the start of the year would probably stay in place in the short to medium term but prices could pick up later.
"In the long term you can't get away from the fact that the UK housing market is undersupplied. We don't see it (the correction) being a permanent feature," he said.
It was too early to call the future of prices in London, Rennison said, because the higher number of cash buyers and overseas investors make it less predictable. A clearer picture would emerge in the autumn, a more normal period for activity, he said.
Separate data from the British Bankers' Association (BBA) showed on Monday that British customers made 6.9 billion online banking transactions last year, or 800,000 an hour, compared with a total of 5 billion in 2009.
Rennison said this shift, described by the BBA as a "seismic change" in the way customers manage their finances, has been visible in its customers' behaviour.
"Many (customers are) choosing to transact online as a matter of choice and convenience. We expect to see that continue," he said.
To capitalise on the growing usage of online banking, Nationwide has invested heavily in its digital services over recent years, including revamping its website, providing video conferencing with support staff and developing its mobile app.
Nationwide said it hasn't changed the provisions set aside for compensating customers for mis-selling payment protection insurance (PPI) and was nearing the tail end of dealing with the issue.
National Australia Bank said on Monday it would need to take an additional provision of at least 75 million pounds in relation to PPI redress at its UK businesses, which includes Yorkshire and Clydesdale bank branches.
($1 = 0.5978 British pounds) (Reporting by Clare Hutchison; Editing by David Goodman and Susan Fenton)