HBOS set to meet profit forecasts

RAMPANT growth in house prices will almost halve to 8% next year, according to mortgage bank HBOS.

It says home values have risen 15% this year, but it expects a slowdown as higher interest rates begin to bite.

The bank, formed from the Halifax and Bank of Scotland, is on course to make profits of about £3.7bn for this year, in line with forecasts.

But its shares dipped 15p to 703p as traders registered their disappointment that it did not perform even better.

The bank said its bad debt write-offs were in line with expectations and the quality of its loans is sound.

Chief executive James Crosby described comments made by Barclays' finance director John Varley that some borrowers face 'financial nemesis' after the recent quarter-point rate rise as 'a gaffe'.

But in a report to be published next week, HBOS will say the total cost of owning and running a home has increased by four times the rate of inflation in recent years, even though interest rates are at 50-year lows. The main culprits are higher council tax and utility bills.

A spokesman said: 'The Government needs to be mindful of how much tax it is extracting from homeowners. The maximum limit is approaching fast.'

HBOS raised fears of a drought of first-time buyers - traditionally the engine of the housing market. Young people are struggling to get on the ladder in places such as Leeds and Birmingham, as well as the traditionally expensive London market.