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Highlighting the risks of a “slowdown” in the property market, the chancellor has called on mortgage providers to be more responsible in their lending.

Interviewed in Thursday’s Daily Mail, Alistair Darling said some banks and building societies have been fuelling an “unsustainable” boom in house prices.

The comments came as the International Monetary Fund predicted that the American sub-prime mortgage market crash would spread to Europe

It said in a new report that “there would clearly be a sizeable impact on the housing markets in the event of a widespread credit crunch”.

But Darling insisted that Britain is well-placed to weather the storm.

“I am confident we can get through this, but we are going to go through a turbulent period,” he said.

“That is why I downgraded my expectations for growth quite sharply because of what is happening in the United States and in Europe as a whole.”

“While there is likely to be a correction in the housing market “what you want to avoid is a very rapid unplanned adjustment,” Darling added.

“Our economy is quite heavily influenced by housing because we have such a high level of home ownership.

“The housing market will slow down but that is a relative thing because our housing market has been growing so strongly.

“Most people would agree that unsustainable house price inflation is not good for individuals and is not good for the economy.”
Lending

Following last month’s Northern Rock crisis, in which the Bank of England had to bail out the lender with emergency funding because of its over-exposure to the American market, the chancellor said the Financial Services Authority would be asking “more searching questions” of City institutions.

“The FSA needs to look at how it regulates banks and whether the alarm bells should have rung much earlier,” Darling said.

He added that it should also be asking banks “what’s your fallback position?” if repayments are not made.

“I think that lenders need to be clear that firstly somebody can afford to meet the repayments whatever they are – that they haven’t overstretched themselves,” he said.

“We have got to make sure we have a far better surveillance system to spot these problems and take action to head them off.”

And he said banks should not rely solely on the advice of credit ratings agencies, who should “simply be giving advice to companies”, when making lending decisions

“People shouldn’t think that if they [the ratings agencies] say it’s okay, that it is okay.”
CGT

Meanwhile Darling appeared to be digging his heals in over the changes to capital gains tax announced in his pre-Budget report last week.

Reports had suggested that the business community is increasingly hopeful that he will rethink his plans to introduce a flat rate of of 18 per cent, which critics have said will damage small businesses.

Former Labour deputy chief whip George Mudie, a close ally of the prime minister, had called for a delay on the proposal to end the taper relief that led to the tax being levied at just 10 per cent in some cases.

And employers’ groups were thought to have been encouraged by two meetings on Wednesday with business secretary John Hutton, who apparently agreed to relay their concerns to the chancellor.

But Darling indicated that he would be sticking by the changes, due to come into force next April.

“It is not a tax on entrepreneurship,” he claimed. “It was striking that nearly 75 per cent of those who pay CGT need an accountant to tell them how to calculate their liability.

“That tells you it is quite complex, so going for a simplified rate is hugely beneficial. If you look at the rate internationally, it is competitive.”

“The goal was to narrow the differential between taxes on income and capital,” he added. “I wanted to keep it as low as possible.”

Speaking at Treasury questions in the Commons on Thursday, shadow chancellor George Osborne called for a “U-turn”.

“Millions of small businesses are going to lose out, millions of employees who have shares in their own company could be at risk and the whole entrepreneurial culture… is under threat,” he said.

However Darling insisted that: “A single rate of capital gains tax is the right thing to do. Therefore I intend to proceed with the changes that we are making.”