Underlying pre-tax profits dropped to £212m for the year to 4 April compared with £393m a year earlier.
The group said it expected the difficult conditions to continue throughout the year.
Meanwhile it said its share of the mortgage market dropped to 8.7 per cent from nine per cent in 2009.
Nationwide added that there was scope for "further downward pressure" depending on a number of factors, including the consequences of a more austere economic environment.
It said that to meet cost targets it was considering making possible cuts to its administration centre network.
But the group said the market had performed "much better than expected" in 2009-10, with average prices rising by nine per cent.