Louise Cuming, head of mortgages at moneysupermarket.com, said: “In 2007 I expect interest rates will rise briefly but go no higher than 5.5 per cent, and will fall back by the end of the year. The main driver of the increasing interest rates is inflation, and the fact it remains higher than Gordon Brown’s two per cent target. Therefore, the base rate will need to rise again to bring that under control.
“House prices will continue to rise at a much higher rate than average salary - circa seven per cent. However, if the Government does not continue with its drive to provide new and affordable housing stock, the ongoing lack of available reasonably priced housing could lead to overall stagnation of the housing market.
“Finally, competition between providers to acquire new borrowers will continue to escalate and will force lenders to maintain market-leading rates. The resulting price war will mean the current trend of lower rates coupled with higher fees will continue. In addition, lenders will continue to concentrate on the attraction of profitable first time buyers and home movers rather than customer retention.”
