Greenspan in housing market warning

The former US Federal Reserve chairman, who also advises Prime Minister Gordon Brown, considers recent increases in house prices - particularly in the south - as unsustainable.

Mr Greenspan, 81, believes the market is heading for a painful correction and warns that it is more exposed to the current financial turmoil than the American market.

His warning came after a weekend of crisis which saw worried customers of mortgage lender Northern Rock withdraw £2bn from their accounts after it had to ask the Bank of England to bail it out with emergency funding.

He told the Daily Telegraph: "There are going to be some difficulties. 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. It's going to turn, it's got to turn."

The revered economist also said that Britain is more vulnerable to the effects of the credit crunch than the US because it has a higher level of adjustable-rate mortgages.

But despite his prediction the housing market is to spiral downwards, he does believe the UK economy is in a position to deal with any problems that will create.

He said: "You (in the UK) 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."