The Nationwide building society has upped its year-end forecast for UK house price growth, despite last week’s interest rate hike.

House prices are now expected to grow by around 5% as opposed to the 0% to 3% predicted in December.

Fionnuala Earley, Nationwide's group economist said: "The resilience of the market so far this year in the face of deteriorating affordability suggests that there is still enough demand in the market to support prices. However, we expect some softening towards the very end of the year, mainly due to affordability, but also reinforced by the surprise increase in interest rates, which can do nothing other than add to caution."

"At the regional level, the revival of the London market and the remarkably fast growth of house prices in Northern Ireland and Scotland have been the highlights over the past six months. We expect house price growth to remain robust in these regions."

"However in Northern Ireland the current annual rate of growth of almost 25% is unsustainable and will cool as we enter 2007. The revival of the London market will also feed into the neighbouring regions through the ripple effect."

On the effect of the rate rise Ms Earley continued: "The MPC’s decision to increase interest rates sent shock waves through the City but is unlikely to have the same effect on the housing market. Our initial view, in advance of the Inflation Report and MPC Minutes, is that this is a pre-emptive move, which is likely to have only a modest impact."

"Money markets had anticipated a rise, so fixed mortgage rates had already risen to around 5.2% from around 4.8% in early April. Tracker mortgage rates will now rise, but less than half of borrowers currently choose these."