Britain's biggest mortgage lender, the Halifax, says that house prices will rise by 5% next year.

It also expects bank interest rates to go up to no more than 8% before falling back again in the second half of 1998.

The building society says that after the recovery from the slump of the late 1980s and 1990s, house prices are expected to show only modest rises in the first few years of the millennium.

If the predictions are correct, mortgage rates would stay below 10%.

According to the Halifax, Britain has seen a sustainable recovery in the housing market and the five increases in interest rates since the General Election on May 1 seem to have done little to stop that continuing.

A spokesman for Halifax, Gary Marsh, says the housing market is in a state of "healthy recovery".

"We're expecting house prices to rise at around 5% in 1998 with transaction up a little, at around the 1.5 million mark."

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