YORK homeowners were being urged not to panic today after a leading lending group warned that interest rates would need to rocket to TEN per cent to cool down house prices.

The dire warning was reported to have been released from the Council of Mortgage Lenders (CML).

But York estate agents said the body, which represents banks and building societies, had got it wrong, and argued that there was no need to worry at this stage.

Michael Coogan, director-general of the CML, predicted that interest rates would rise to 5.25 per cent by the end of the year.

Mr Coogan said: "We are not expecting a house price crash, we expect there to be a slowdown."

Mr Coogan said house price rises would continue to be above ten per cent this year, but they would slow down to eight per cent next year.

Asked what action the Monetary Policy Committee (MPC) of the Bank of England should take, he told BBC Radio 4's Today programme: "We expect them to put interest rates up over the rest of this year to 5.25 per cent."

In York today, Kevin Hollinrake, of Hunters estate agents, in Colliergate, said a doubling of the interest rate would be "out of the question".

"I can't believe a doubling of the interest rate is what is required to slow the housing market. It would close down the buy-to-let market," he said.

"I actually think the market is more sensitive than the CML has given it credit for. The market will steady in the future and we may see some modest increases."

Ben Hudson, of Hudson Moody, said: "I don't think there is any need to worry. I can't see any dramatic changes in the market.

"In the late 80s, when there was a property crash, Yorkshire prices didn't fall, and there's no reason to think there will be any difficulties in the region should it do so again.

"We will see a slowing in the market, but I think the Government and the Bank of England has bigger issues ahead at the moment."

Updated: 10:22 Monday, May 24, 2004