THE British housing market would be "severely destabilised" if the Labour government were to scrap mortgage tax relief in its forthcoming Budget, a survey of more than 250 estate agents warned yesterday.

Many housing market professionals and builders expect Labour to announce the removal of tax relief on home loans - known as Miras - next month.

A survey of English and Welsh estate agents conducted by the Royal Institution of Chartered Surveyors said the ending of Miras would hit homeowners harder in the north of England, where prices were substantially lower than in the south.

The rate of relief under Miras, which only covers the first £30,000 of a mortgage, was reduced by the previous Conservative government to 15 per cent. The institution said the removal of tax relief altogether would lead to a widening of the north south price gap. It said any further erosion of Miras "should be done gradually for the sake of a stable market".

The maximum saving under Miras is worth £28.50 a month for individuals with home loans of £30,000 or more and paying interest at the new rate of 7.6 per cent.

The institution said the pace of house price rise was likely to slow anyway as a result of higher home loan costs following Labour's decision to allow an independent Bank of England to set interest rates. It said: "Interest rates are likely to rise higher and faster (this year) since the Bank of England was granted independence."

However, in the long term an independent Bank was likely to result in "more stable interest rates", reducing "the cost of fixed rate mortgages.