British house prices will rise by more than 10 per cent a year for the next 18 months and interest rates may hit 6 per cent, but prices are not set for a crash, according to a group representing banks and buildings societies.
The UK Council of Mortgage Lenders (CML) increased its forecast for 2004 house-price inflation to 14 per cent from 8 per cent and said British interest rates would probably end the year at 5.25 per cent, up from its earlier forecast of 4.5 per cent.
CML director general Mr Michael Coogan rejected a report in the Sunday Telegraph newspaper that cited him saying interest rates must more than double to bring house prices under control.
"Nothing dramatic is expected to happen in terms of interest rates," according to Mr Coogan.
"We expect over time that house-price inflation will come back down, but it won't necessarily be in the next 18 months," he said.
British house prices have boomed in recent years amid interest rates at lows not seen since the 1950s. The housing market is a key determinant of UK consumer spending and economic confidence as about two-thirds of Britons own their homes.
Interest rates will peak at 5.5-6 per cent over the next two years, Mr Coogan said.
The Bank of England raised rates by a quarter point to 4.25 per cent this month, the third rise since November, in a bid to cool consumer spending and house prices.
Houses will remain affordable because the economy is buoyant, unemployment is low and inflation is under control, according to Mr Coogan.
The CML will publish its forecasts later today.
