* 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 (Reuters) - Nationwide Building Society, Britain's biggest customer-owned lender, more thandoubled its first-quarter profit, helped by improvements to itsbalance sheet, it said on Monday.
Nationwide, Britain's third-largest mortgage lender andsecond-biggest provider of saving products, also said itexpected house prices to continue to moderate over the mediumterm, after showing strong growth earlier in the year andprompting fears of a bubble.
Underlying profit of 263 million pounds ($440 million) inthe three months to June 30 was up 117 percent against the sameperiod last year.
Profitability at Nationwide has been steadily improving overthe last two years, after it repriced maturing longer-term fixedrate mortgages onto higher current market rates, which boostedmargins, Group Finance Director Mark Rennison told Reuters.
It has also seen a moderation in impairment charges afterreducing its exposure to some commercial real estate, a "bigissue" for the lender, Rennison said.
It now has a core capital ratio of 16.3 percent and leverageratio of 3.7 percent, ahead of a target set by Britain'sfinancial regulator.
As well as deleveraging, Nationwide has been seeking tochallenge the dominance of Britain's five biggest banks, wooingcustomers disillusioned by scandals including the mis-selling ofloan insurance and the rigging of benchmark interest rates.
It has been offering interest of 5 percent a year on someaccounts and has won customers from rivals as a result of newrules making it easier to switch accounts.
The mutual society, which is targeting 10 percent marketshare, said it accounted for 6.4 percent of the current accountmarket in the first quarter, up slightly from 6.2 percent.Member deposits increased by 1.5 billion pounds to 132 billionpounds.
The big five of Lloyds Banking Group, Royal Bank ofScotland, Barclays, HSBC and SantanderUK control about 80 percent of the market for personalcurrent accounts.
HOUSE PRICE CORRECTION
Data released on Monday by property website Rightmove showeda prediction made by Nationwide Chief Executive Graham Beale inMay for a cooling of house prices in London over the summer hadbeen borne out.
After soaring earlier in the year, asking prices in Londonfell for a third month, dropping nearly 6 percent between Julyand August. Across the UK, prices of property coming onto themarket fell by 2.9 percent from July.
Rennison said a natural correction from the strong growth inprices at the start of the year would probably stay in place inthe short to medium term but prices could pick up later.
"In the long term you can't get away from the fact that theUK housing market is undersupplied. We don't see it (thecorrection) 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 andoverseas investors make it less predictable. A clearer picturewould 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 onlinebanking transactions last year, or 800,000 an hour, comparedwith a total of 5 billion in 2009.
Rennison said this shift, described by the BBA as a "seismicchange" in the way customers manage their finances, has beenvisible in its customers' behaviour.
"Many (customers are) choosing to transact online as amatter of choice and convenience. We expect to see thatcontinue," he said.
To capitalise on the growing usage of online banking,Nationwide has invested heavily in its digital services overrecent years, including revamping its website, providing videoconferencing with support staff and developing its mobile app.
Nationwide said it hasn't changed the provisions set asidefor compensating customers for mis-selling payment protectioninsurance (PPI) and was nearing the tail end of dealing with theissue.
National Australia Bank said on Monday it wouldneed to take an additional provision of at least 75 millionpounds 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 andSusan Fenton)