British homeowners have been given their strongest warning to date that interest rates will rise again as the Nationwide predicted they would top 5% next year.
The building society said it believed the Bank of England would be forced to act by inflationary pressures caused by rising producer prices, a lower exchange rate and increasing wage pressure.
But any rises were unlikely to come into effect much before spring or summer, it said in its 2005 housing market forecast.
Figures for this month showed house prices rose by 1%, while the value of an average UK property is forecast to increase by just 2% next year as more realistic price expectations act as a brake on the market.
Nationwide did not rule out a market crash, saying that 'considerable uncertainties' surrounded the outlook, but that a sharp decline was unlikely.
The combination of higher interest rates, higher price inflation, subdued take-home pay growth, higher debt levels and rising energy prices are likely to lead to a gentle braking of house price growth as opposed to a full-scale emergency stop, it said.
