CONTINUED strong economic growth and favourable demographic factors will continue to feed the demand for mortgages, but the latest rise in interest rates will have a slight dampening effect, according to Irish Permanent's chief executive, Mr Roy Douglas.

While the demand for mortgages has remained strong in July, the former building society has seen some fall-off in August, and will be watching its figures for September to gauge the impact of higher mortgage rates on business volumes.

But with the demand for new housing estimated to be running to between 25,000 and 35,000 new units per year over the next four to five years, Mr Douglas says the prospects for mortgage lending remain favourable.

An aggressive marketing package to lure new customers was stepped up this year and has proved successful.

Dropping acceptance and legal fees, Irish Permanent has also been able to bring in good-quality new business through its brokers. However, the campaign has been a costly undertaking, adding £600,000 to Irish Permanent's mortgage costs in the half-year period.

On top of these higher costs, the group is also facing reduced net profit margins over the rest of the year, due to the rising cost of funds on the wholesale money markets.

But it says no further increases are expected before the end of the year. Having increased its rates by 0.25 of a percentage point last week, the bank says its rates are now likely to hold at around current levels.

Despite the economic boom, the former building society said it repossessed some 37 houses in the first six months of the year, most which were "voluntarily handed over" to the group. Last year 80 homes were repossessed.