Mortgage rates will increase substantially over the coming year, according to leading loan providers. Bank of Scotland, which provides low-cost loans in the Irish market, has warned that repayments will rise further next year. According to Noel Griffen, head of treasury at the bank, borrowers with a mortgage of £100,000 will have seen their monthly repayments rising by over £100 since last November, when rates were 3.99 per cent. The latest increase last month will add another £14.

But he warned that there are likely to be further rises into 2001, pushing repayments up by £160 by this time next year. "The ramification for those already borrowed up to the hilt is not hard to figure out."

And borrowers should probably take that warning quite seriously. The European Central Bank (ECB) has now raised rates seven times in the last year. Most of these rises were a quarter of a percentage point, which usually meant small increases except for those with the very biggest mortgages.

However, the combination of all seven has been more substantial, as Mr Griffen pointed out. Further rate rises next year will make it worse.

OF course, it is important to remember that rate rises are not certain. Anyone who says a rise is certain by a set date may not necessarily be right - if they could always guess correctly they would more likely be lying on a beach in the Bahamas than giving mortgage advice.

Nevertheless the markets do expect further rate rises as the ECB attempts to battle rising inflation. Prices are rising across Europe and not just in Ireland. The average euro zone inflation rate is now above the ECB's self-imposed limit of 2 per cent and may stay that way for several months. The weak currency, which pushes up the price of imported goods such as magazines, breakfast cereals and so on as well as oil prices, has contributed to big price rises in many shops and restaurants.

Official ECB interest rates are now 4.75 per cent. They are likely to rise to 5 per cent, perhaps by Christmas or early in the New Year. Analysts are of course divided on the precise timing.

As Mr Griffen made clear, the changes in the market will have an impact on some borrowers. Those that went to the Bank of Scotland are unlikely to be affected. It only targeted people who had at least a 20 per cent deposit and who were at least second-time buyers. Those who may get into difficulty are first-time buyers who borrowed to the limit of their ability.

When stockbroking firm ABN Amro reported on the housing market earlier this year, it found that at the level of interest rates then applying, there was little problem. But crucially, according to chief economist Dr Dan McLaughlin, a rise in mortgage rates to over 6 per cent would present difficulties.