Difficulties ahead for UK home owners

Former US Federal Reserve chairman, Alan Greenspan, has spoken of ‘difficulties’ ahead for home owners in the UK, with rising interest rates likely to bring rising house prices to a halt.

According to Mr Greenspan the UK housing market is under more threat from the world ‘credit crunch’ than the US because of its higher number of adjustable-rate mortgages which are linked to interest rates.

Mr Greenspan, 81, said: “There are going to be some difficulties. You’re already beginning to see the mortgage rates are moving. A lot of the two-year fixes are beginning to unwind, and the teaser rates are going. It’s going to turn, it’s got to turn.”

Despite recent downward figures, he also warned that inflation soon could go up again and the Bank of England, which has raised interest rates in the past year from 4.5% to their current 5.75%, may have to take them into double figures to keep prices down.

The pessimistic comments come after recent figures suggest the UK housing market is slowing down, but Mr Greenspan still believes the UK economy is in a position to deal with any problems.

He said: “You haven’t had a taint of a recession for an extremely long period of time, and a good part of that is the flexibility that came out of the crush between Scargill and Thatcher. That was the defining moment, and to their credit Blair and Brown did not endeavour to unwind it. They recognised that there was something fundamentally good for British labour in having a flexible economy. It’s like tough love, as we call it. It’s unhappy-making, but in the end it works.”

Greenspan has been impressed by new PM Gordon Brown, and his commitment to ‘globalisation and free markets’ and the fact that he ‘did not seem interested in reversing much of what Margaret Thatcher had changed’.

In his book Age of Turbulence, Adventures in a New World, Greenspan, writes: “Britain’s evolution from one of the most ossified economies in the years following World War II to one of the most open economies in the world is reflected in the intellectual journey of Gordon Brown.”