Woolwich Building Society said house prices will rise 3 per cent during 1994 and housing transactions by 6-7 per cent.
A National Westminster Bank study released today predicted a rise of 5.5 per cent next year.
David Kern, chief economist, said this annual rate of increase, which compares with a 2 per cent increase forecast for 1994, would be maintained to the end of the decade.
He said he expected basic interest rates to rise 0.5 per cent to 5.75 per cent within the next six to eight weeks to pre-empt and limit an expected upturn in inflation.
Woolwich, Britain's third-largest mortgage lender, also reported pre-tax profits up by 51 per cent to pounds 133m on the back of collapsing provisions against bad debts. The number of people in arrears with repayments fell dramatically and provisions for the six months to 30 June more than halved to pounds 30m.
Donald Kirkham, group chief executive, said: 'This most welcome result reflects both the stabilisation of house prices and the success of our arrears management policies.'
Woolwich has said that it favours expansion by merger with other societies but insisted yesterday there were no talks at the moment. City rumour has linked it with Halifax and Leeds Permanent.
Mr Kirkham said the society had done well despite difficult market conditions and intense competition.
Total mortgage lending by the society fell from pounds 1.64bn to pounds 1.32bn and net retail receipts slumped from pounds 389m to pounds 22m.
Operating profit before provisions rose by 1.5 per cent to pounds 163m and total assets rose to pounds 25.57bn.
The group's capital strength grew over the six months with the gross capital ratio up 0.4 per cent to 7.4 per cent. Another measure of financial strength, the solvency ratio, rose from 13.1 to 13.7 per cent of risk-weighted assets.Reuse content