SUB-PRIME slime, the American-spawned menace that has shaken banking giants and rocked share and bond markets, has invaded our shores.

The extent of the threat that this fearsome creature could pose to our housing market has yet to become clear, although some early effects are already being felt. These include more expensive mortgages for some homebuyers but cheaper deals for others. This is yet another example of the unpredictable nature of the sub-prime affair that began with the campaign mounted by some US banks to peddle mortgages to down-on-their-luck “sub-prime” borrowers who often had negligible ability to meet these commitments. Most were in the “Ninja” (no income, no job or assets) category.

Amid the uncertainty – even Hank Paulson, the US Treasury Secretary, has this week conceded that there will be no “quick fix” to the situation – one thing is sure. Now is the time for everyone with a property investment to watch the action and tune into the mood in all other markets. As a homeowner, it is tempting to think local, concentrating on the direction of prices in your neighbourhood. However, the sub-prime affair, which started in dirt-poor districts of Florida and Nevada but could yet spread to the squares of Belgravia, illustrates the interconnection between all markets and the need to think global.

One immediate consequence of the upheaval in share and bond markets worldwide is the decreased likelihood of another bank base rate rise next month. Simon Rubinsohn, the chief economist at the Royal Institution of Chartered Surveyors (RICS), notes that this has led to a fall in money market “swap” rates that determine the level of fixed-rate loan offers. Some lenders are already cutting the price of their fixed rate loans – good news for the creditworthy.

BACKGROUND

• Opening bids - Is it Christmas already? Tell Santa to break out a rate cut without further delay?

• Which economists will win the contest to be the gloomiest over the future for prices?

• Which camp are you in - storm clouds or showers? Even the experts are split

• Opening bids - a year in property

BACKGROUND

• Opening bids: Why the Government must do something about Britain’s empty properties

• Will there be a rate cut before Christmas? Kate Barker knows - but she’s not telling

• Downturn and downtown in 2008: how investors in UK city-centre flats may feel the chill first

• Opening bids

Sub-prime slime is oozing out everywhere from the US -where will it spread next?

BACKGROUND

• Comment: The housing shortage

• Ripple effect from Belgravia to the suburbs

• Comment: the property market slowdown

• Tax perks for a few are adding to the property have-nots’ sense of injustice, but don’t expect reform any time soon

• This was not a timely retreat. What does the government now mean to do to save the planet?

The silencing of our Mr Spocks

Our public administration has specialised in low-level, chronic inefficiency with a counterpoint of big talk

BACKGROUND

• Average prices in the South are 1.59 times higher than the North

• The City’s ardour for status homes remains unabated

• The dawn of a more eco-conscious Britain may be delayed

• It's bonus time, let the stampede begin

• Prices and politics either side of the border

Hips will make us greener, or so the Government says

• Hips have already won hearts and minds and will make us all greener, or so the Government says

BACKGROUND

• Mortgage competition makes millions immune to base-rate moves

• Hidden costs of a place in the sun

• Primark Principle revises gloomy views

• Going green is not cheap

BACKGROUND

• US economy faces double threat to prospects

• US economy can rise above housing dip

• US house sales slow to lowest rate for 2½ years

But another repercussion of the sub-prime affair may be misery for the would-be homebuyer with past debt problems, resolved to henceforth tread the path of repayment righteousness. If this borrower surmounts the new obstacles and actually succeeds in obtaining a loan, the rate he pays will be high. Banks are being much less open-handed as the result of the damage done to their balance sheets by their – arguably reckless – willingness to buy sub-prime loans that were repackaged and sold on as apparently solid investments.

Sub-prime slime may seem to be oozing everywhere, leaving a toxic trail wherever it goes, but it cannot be blamed for the cooling in the mood of our housing market. This was already under way before the tumult began. Moreover, despite events in the financial markets, the UK economy remains strong and employment is high, factors that should ensure that a slowdown cannot turn into something more serious.

For the moment, the smarter streets of Central London appear almost unpeturbed by the consternation. David Forbes, of Savills, reports that people have been bidding blind for £15 million£20 million properties, based merely on floor plans. He notes that buyers possessed of such resources, mostly moneyed international types, view the sub-prime affair not as an economic crisis but as a smaller financial one.

Elsewhere in the capital, however, asking prices are starting to slip, according to Right-move.com, the property portal. Meanwhile, declining share prices and fewer takeover bids are set to trim the bonuses to be awarded later this year to City and Canary Wharf executives who have been some of the most enthusiastic purchasers of real estate. Ed Stansfield, of Capital Economics, does not think that we will see destitute investment bankers on the streets “rattling tin cups”, but if their spending power was curtailed this would put a dampener on prices in London and the South East.

While events in the sub-prime affair continue to unfold, the average British homeowner will probably feel aggrieved that his situation may be affected by the negligent lending practices of US banks that preyed on the vulnerable, while the watchdogs turned a blind eye. It may not be of much comfort, but American homeowners feel much more let down, as a trawl through such blogs as patrick.net/housing/crash.html and thehousingbubbleblog.com reveals.

HIP HYPE

Opponents of the home information pack (Hip) scheme argued that buyers would not place much reliance on data supplied by the owner of a property. They can now say that this belief was justified, although it appears that it is banks, including HSBC, who suspect sellers could suppress the truth. If the Hip provider, rather than a solicitor, has obtained the local authority searches that are a vital component of the pack, then the lender will not be satisfied. The buyer of the property must then foot the bill for commissioning new searches. Hips, if you remember, were intended to streamline the housebuying process and create a new eco-consciousness. This claim will also appear entirely unreliable, unless the Government acts soon to sort out the confusion.

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