THE bubble could be about to burst on low cost home loans amid speculation that interest rates will rise during the next 18 months.

Leading lenders are raising the price of fixed-rate mortgages, despite the Bank of England's decision on Thursday to keep interest rates on hold at a 48-year low.

Halifax, Abbey National, Woolwich, Nationwide, and Cheltenham and Gloucester all increased the cost of fixed-rate mortgages, blaming the decision on movements in the money markets.

Banks have to borrow money from other institutions in order to offer customers fixed rate mortgages but, while the Bank of England's base rate remains at 3.5 per cent, the cost of borrowing has risen in the City.

Factors behind the upward move appear to include the expectation that interest rates will rise next year, and a decline in the value of bonds.

A Nationwide spokesman said: "In order to fund fixed-rate lending we have to buy tranches of money in the City.

"Over the past week or so we have seen the rates available increase in cost by broadly the same amount by which we have had to adjust rates.

"I think there has been a change in sentiment regarding both the UK and global economy - increasing consumer confidence has led people to believe that the next move in general interest rates will be up, even if that may not be until next year."

Halifax, the UK's biggest mortgage lender, announced that a home-owner wanting to borrow up to 80 per cent of the value of a new property with rates fixed for two years will now pay interest at 3.99 per cent - up from 3.79 per cent.

A first-time buyer, borrowing up to 97 per cent of the value, will pay 4.35 per cent rather than 3.79 per cent.

Abbey National's two-year fixed rate deal has already gone up from 3.49 per cent to 4.29 per cent.

Nationwide, the UK's largest building society, put the interest rate on a new two-year fixed-rate mortgage up from 3.59 per cent to 4.09 per cent. Similar factors have led to the Woolwich increasing its two-year fixed-rate offering from 3.79 per cent to 4.19 per cent.

Cheltenham and Gloucester's two-year rates go up from 3.99 per cent to 4.49 per cent from Monday for mortgages worth up to 90 per cent of the value of the property.

House prices race ahead in North-East

THE North-East continues to be a hotspot for house price rises, according to new data.

Hartlepool topped the list of big moves with average prices up 25.3 per cent to £68,958 over the past quarter.

Just behind Hartlepool were Darlington, up 19.1 per cent to £90,544, Redcar and Cleveland, up 17.9 per cent to £79,472, and Tyne and Wear, up 16.9 per cent to £96,891.

House prices increased by almost 13 per cent in England and Wales in the past year, according to The Land Registry's quarterly residential property price report.

The report said prices were 12.52 per cent higher between April and June than they had been during the same period last year.

But the growth rate is slowing. It was 19.7 per cent in January to March compared to the same period last year, and 22.2 per cent in the final three months of last year.

At the same time, the volume of sales fell by more than 16 per cent with 245,632 properties changing hands compared with 293,352 in the same period a year before.

London remains the most expensive part of the country, with prices averaging £246,710.