LONDON - Competition among lenders in Britain's mortgage market has eased since a crisis at Northern Rock two months ago, lifting margins after a period of prolonged erosion, the head of Yorkshire and Clydesdale Banks said.

"The mortgage market was getting a little bit silly in the summer and some of the margins out there were getting wafer thin and quite honestly not sustainable," said Lynne Peacock, the chief executive of the business, which is owned by National Australia Bank.

"What you see now is a more sustainable situation, but it's still pretty competitive," she told Reuters in an interview on Friday, estimating that mortgage margins had improved by about 10 basis points.

Peacock was speaking after Yorkshire and Clydesdale reported pretax profits in the year to the end of September rose 16 percent from a year before to 379 million pounds ($800 million).

NAB's UK arm had been seen as a possible takeover target, but that talk has turned around after a recovery in the past two years and Peacock said she would consider acquisitions.

"We've got strong organic growth plans and that's what we are building our business on, but that doesn't mean that if something came along that helped us execute our strategy quicker or more effectively we wouldn't look at it," she said.

She declined to comment on whether NAB was interested in buying all or parts of the mortgage book of Northern Rock, which is expected to be sold after turning to the Bank of England for emergency loans following a funding crisis.

Northern Rock was the biggest mortgage lender in the first half of this year, grabbing almost one-fifth of new lending with aggressive offers. Yorkshire and Clydesdale have about a 2.5 percent share of the UK market.

Peacock said NAB's UK growth was underpinned by "strong volume growth with a conservative approach to risk".

Its mortgage lending in the year to end-September rose 19 percent to 10.1 billion pounds, business lending jumped 26 percent to 12.4 billion, and average retail deposit balances rose 21 percent to 15.6 billion.

Retail deposits covered 63.4 percent of its loans and Peacock said even before Northern Rock's problems NAB UK had diversified the source and duration of its wholesale financing. "We're in a very strong position," she said in terms of the funding position.

She expected the UK housing market to grow next year, but at a slower rate than in recent years after UK interest rate rises and turmoil in broader financial markets.

NAB earlier reported a 20 percent rise in second half profit.