MORTGAGE specialist Bradford and Bingley predicted the housing market would continue to soften as a series of interest rate rises take their toll.

But the lender said house prices would still rise by about two per cent next year - in contrast to some warnings from rival lenders and analysts of a substantial fall.

It came as the group estimated profits for this financial year would be at the top end of analysts' expectations.

B&B forecast that the housing market would move into a period of consolidation, which it welcomed.

Mortgage affordability remained good and it did not expect to see any material decline in arrears in the near-term.

It said in a trading statement: "We believe that the housing market will move into a period of consolidation with reduced house price inflation and transaction volumes.

"We currently forecast house price inflation will be around two per cent in 2005."

The forecast was in line with a statement earlier in the week by Nationwide building society, which also predicted a two per cent rise.

But it is far more optimistic than other surveys that have warned of a sharp fall. Barclays recently warned householders to expect an eight per cent drop in property prices next year, while Deutsche Bank said they could fall by as much as 15 per cent.