MORTGAGE lenders were forced yesterday to soften their warnings about the growing danger of rising interest rates after reports suggested that the housing market is heading for a crash.

The Council of Mortgage Lenders (CML), which represents bank and building societies, revised its housing and mortgage market forecast to play down the likelihood of a doubling of interest rates.

When the Chancellor made it clear that doubled rates were out of the question, the CML said that such rises were “neither likely or desirable”.

In an earlier version of the briefing, researchers said: “There are risks for interest rates. Our simulations suggest that interest rates would have to more than double to take house price growth below double digits in the short term.

“As a result, it may be too late for the Monetary Policy Committee (which sets interest rates) to influence the housing market with small tweaks to interest rates.”

This was later changed to include the comments that aggressive rate rises exacerbate the two-speed economy and “increase the likelihood of consumer payment difficulties”.

The CML later attempted to allay borrowers’ fears of extortionate mortgage repayments by saying that its original forecasts were intended to be only hypothetical observations.

Michael Coogan, CML director general, said: “Our forecasts article observed that if the MPC specifically designed to target house price inflation and bring it down to single digits immediately, then interest rates would need to double. We do not want it to happen, nor do we believe that it will.”

However, the organisation believes that interest rates will rise to 5.25 per cent by the end of the year — one percentage point more than today’s level.

Explore Property

• Buying & Selling

• New Homes

• Overseas

• Interiors

• Investment

• Gardens

• Cool In Your Code

• Specials

• First-time buyer

Times recommends

• Second homes: credit crunch casualty or money-spinner?
• How I built my own sliding house
• Top 10 incentives for house buyers