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19 July 2007

Halifax, the UK's biggest mortgage lender, has raised its house price inflation forecast for the year from 4% to 6%, despite higher interest rates.

Halifax is part of the HBOS group and made the change after house prices rose faster in the first six months of the year than it had expected.

This was due to a stronger economy and a shortage of new home construction.

However, the Halifax predicts that price growth, which rose by 5% in the first half of the year, is now easing.

"The increase in mortgage rates since last summer is having an effect on housing affordability and will increasingly bite over the second half of the year," said chief economist Martin Ellis.

The Bank of England has raised its main borrowing cost five times in the past year to 5.75%.

Record lending

Even so, the effects of higher rates are taking time to filter through, and mortgage lending reached another new record in June, according to the Council of Mortgage Lenders (CML).

Total new lending rose by 9% from May to £34.2bn, despite the five increases in interest rates imposed by the Bank of England since last summer.

The CML said the rise was partly seasonal, as this was the peak time of the year for house buying.

It predicted that lending would be strong in the coming months, reflecting continued demand from borrowers.

However the CML said that fewer people would be moving house while more would be re-mortgaging, as borrowers fix their mortgage rates to protect themselves against further rate rises.

"There are signs that the market is feeling the cumulative effects of the five interest rate rises we have seen over the past year," warned the CML's director general Michael Coogan.

"This effect will become much more evident in the coming months as borrowers with fixed-rate mortgages come off their existing deal into a significantly higher interest rate environment."

Credit to debit

Other figures have highlighted the continued fall in credit card lending, driven in large part by the growing popularity of debit cards.

The British Bankers Association (BBA) said that the total stock of money outstanding on its members' credit cards fell by another £73m in June, as people continued to repay more than they sent.

"Consumers' appetite for unsecured borrowing on cards, loans and overdrafts remains relatively flat," said David Dooks of the BBA.

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