UK property prices are set to rise by 7% in 2006, according to the Council of Mortgage Lenders (CML) revised forecasts for housing market activity.

The CMLs forecast for house price inflation in 2007 has also been raised, from 2% to 3%.

Jim Cunningham of the CML says: "The immediate signs are that demand will remain robust over the next few months. But we take the view that confidence and activity are closely associated with interest rate movements and expectations.

"The small rise in short-term interest rates expected in the second half of this year and the rise in fixed-term rates that we have already seen is likely to result in a modest fall in the level of transactions in the second half of this year, and we expect this to continue into 2007.

"At this distance, prospects for 2008 look brighter. The more benign inflation outlook is expected to result in lower interest rates by early 2008.

“This in turn should support demand from home-buyers and buy-to-let investors and result in firmer house price growth."