MORTAGE lenders made history yesterday when they called for a rise in interest rates.

The Council of mortgage Lenders (CML) called for the increase for the first time in its existence, as the booming housing market showed no signs of letting up.

The break with tradition was prompted by concerns that house prices were increasing at an unsustainable pace, and immediate action was needed.

But North-East businesses fear they could be hit hard by a rise in interest rates.

Michael Bird, chief executive of the North-East Chamber of Trade, said: "They need to look at the bigger picture.

"If interest rates went up, it would discourage investment, particularly in manufacturing and we need to keep UK manufacturing competitive."

It is the first time the CML has voiced an opinion on what the Bank of England should do with rates, and came as the group reported mortgage lending during May had reached a new record high.

The average house price rocketed to £107,152 in May - 4.2 per cent above the figure in the previous month.

According to a recent survey by bank Northern Rock, homes in North Yorkshire remain the most expensive of ten areas across the region, with an average house price of £78,350 - up £6,700 since last April.

The knock-on effects of rising house prices in North Yorkshire has also led to people looking elsewhere, causing soaring prices in areas such as Darlington, County Durham.

According to the CML, the combination of higher rates and affordability constraints would help ensure the housing market had a "soft landing".

Michael Coogan, its director general, said: "With rates at historically low levels, a modest rise this summer would help ensure that the housing market is sustainable in the future without causing payment difficulties for the overwhelming majority of borrowers."