More Pain Looms For British Home Owners

Source : The Business Times, September 18, 2007

(LONDON) Britain faces higher interest rates and inflation, according to an interview published here yesterday.

Former US Federal Reserve chairman Alan Greenspan said there are 'difficulties' ahead for British home owners as rising interest rates put the brake on house price growth.

'Can (the boom) last? No, 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,' Mr Greenspan said in an interview with the Daily Telegraph, referring to mortgage rates that rise after an introductory period.

Confidence in the UK's economic outlook was dimmed last Friday when a survey by property website Rightmove pointed to a sharp slowdown in Britain's property market.

Many investors have recently abandoned expectations of another hike in the Bank of England's 5.75 per cent policy rate, as tensions in UK money markets show no signs of letting up and the housing market appears to be peaking.

However, the Daily Telegraph said Mr Greenspan w1arned that UK interest rates may have to hit double figures in the coming years to keep inflation at its current low level.

'In Britain, the housing (market) hasn't turned yet, and the consumer households are more subject to interest rate changes than in the US,' Mr Greenspan said. -- Reuters