LONDON (Reuters) - British mortgage lender Nationwide (>> Nationwide Building Society) said it is well placed to win business from rivals distracted by major upheaval in the banking sector, after reporting a 27 percent jump in profits thanks to record mortgage lending.

Nationwide's gross mortgage lending rose 14 percent to 14.9 billion pounds in the six months through September, or a 13.2 percent market share, to cement its place as Britain's second-largest mortgage lender after Lloyds (>> Lloyds Banking Group PLC) and the main challenger to the big listed banks.

The group, Britain's biggest customer-owned lender with 14 million members, also said it added 256,000 current or checking accounts, up 13 percent, giving it a market share of 6.9 percent which it wants to increase to 10 percent by 2020.

Chief Executive Graham Beale said he was optimistic the lender would take advantage of major changes across Britain's banks, which have to separate their domestic retail banking operations from riskier areas such as investment banking from the start of 2019.

Nationwide is not affected by the new rules, but its six major rivals are, including Barclays (>> Barclays PLC) and HSBC (>> HSBC Holdings plc).

"They have got a massive distraction. It's a huge complicated undertaking and for the big banks it's going to be costing them in the billions to exercise this change," Beale told Reuters by telephone.

"These are big undertakings and it's inevitable they will take their eye off the ball ... so we're in a good place."

Beale, CEO since 2007, will hand that challenge to Joe Garner, the former HSBC (>> HSBC Holdings plc) banker who will take over as chief executive in the spring.

Nationwide said its underlying profit for the six months rose to 801 million pounds, up 27 percent from a year earlier.

Beale said the UK housing market was "healthy and strong" and he expected house price inflation to continue at about 3 to 4 percent, although there could be a cooling-off in London.

Nationwide said stiff competition among mortgage lending was likely to put downward pressure on margins in the next year, after its net interest margin rose to 1.58 percent in the last six months from 1.51 percent a year earlier, thanks to lower funding costs.

(Editing by Mark Potter and David Holmes)

By Steve Slater