Leaders of the mortgage lending industry were joined by consumer-oriented spokesmen yesterday in urging a D.C. City Council committee to lift permanently the legal limit on interest charged on loans made to city home buyers.

Their testimony came as the council's Finance and Revenue Committee pondered whether to keep in force an emergency law passed in July that removed an 11 percent lid on mortgage rates. That stopgap measure will expire Oct. 9, restoring the 11 percent ceiling, unless it is extended or replaced by permanent legislation.

Representatives of savings and loan institutions said yesterday that the prospect of reverting to the 11 percent ceiling already had caused lenders to stop promising loans for home purchases that cannot be completed by early October.

Thomas J. Owen, chairman of Perpetual Federal Savings, said interest on a typical conventional home mortgage in the city has risen to an effective 11 3/8 percent since the emergency bill took effect.

Owen and Martin Wiegand, chairman of Metropolis Federal Saving and Loan and president of the Metropolitan Washington Savings and Loan League, urged the council to enact a permanent law removing the ceiling and letting the market set the rates.

They were supported by other spokesmen for the financial community and also by two witnesses long identified with consumer interests. There was no opposition voiced to some form of increase.

Benny L. Kass, a lawyer, said that "to set an arbitrary (interest) ceiling is an illusory consumer protection . . . once you put a cap on the (industry profit), it's like a (squeezed) baloon, it's going to pop up somewhere else."

James Lowell, director of Neighborhood Housing Services, a foundation-supported consumer group that arranges loans for low-income Anacostia residents, said his organization's board supported the elimination of all ceilings.

"We request this with regret," Lowell testified, "but pragmatically, we see no other solution."

The witnesses stressed that mortgage money in the District is subject to national economic policies and realities and cannot be controlled locally.

Ten states, including Maryland and Virginia, have no limit on mortgage interest, one witness said. Another 17 have rates tied to the rise and fall of national lending trends.

Before the council committee are two bills -- one sponsored chiefly by John A. Wilson (D-Ward 2), the committee chairman that would set a permanent 15 percent rate, and the other sponsored chiefly by Betty Ann Kane (D-At-Large) that would remove the ceiling entirely.

Wilson's bill also would raise the present 11 1/2 percent limit on most consumer installment loans and the present 8 percent limit on most noninstallment loans to 15 percent.

That provision was endorsed by George A. Didden III, vice president of the National Capital Bank, who testified for the D.C. Bankers Association. He said it would broaden credit opportunities for city residents and improve the local economy and tax collections.

City housing director Robert L. Moore, speaking for Mayor Marion Barry, said the 11 percent limit is inadequate and supported Wilson's proposal for a 15 percent ceiling. He said the removal of ceilings could have unwanted side effects, including speculative buying and displacement of current residents.

The hearing was the first by a council committee as the city's legislative body returned from a month-long August recess. The committee will make its recommendation on the interest matter to the full council later.