London housing prices are feeling effects of uncertainty in U.S.

LONDON – Dave and Nicole Anderson had planned to usher in the New Year in a new, larger home – an upgrade made possible by the recent sale of their two-bedroom apartment in the British capital.

Instead, the couple is spending the holiday season in a rental flat, where they plan to stay for a while as they watch the country’s housing market begin to slide, weighed down by the U.S. subprime mortgage crisis.

After a price boom lasting more than a decade, the downturn has implications for the economy as a whole, putting the lid on an era that had allowed many consumers to borrow money cheaply, remortgage quickly and run up large debts.

The only question is how severe the slowdown will be.

The Andersons, thanking luck for allowing the sale of their apartment in Earls Court, west London, to go through before the collapse of global credit markets in August, are hoping for substantial declines as they wait for the right moment to pounce.

“At the moment, it would seem silly to make a commitment,” said Dave Anderson, 42, an IT consultant. “Ideally, for us, prices would come down a lot and we’d buy our dream house next year.”

Economists warn that an increasing number of people adopting the Andersons’ stance could make for a self-fulfilling prophecy – Morgan Stanley economists are predicting house price declines of up to 10 percent as banks tighten lending standards and economic growth slows.

“There is undeniably a very real – and growing – danger that the housing market could see a sharp correction next year,” said Howard Archer, chief U.K. economist of consulting firm Global Insight in London.

Concerns about widespread falls were bolstered by a November report from mortgage lender Halifax showing that British house prices dropped for the past three consecutive months, taking annual house price growth for the year down to 6.3 percent from 8.9 percent the previous month.

Much of the negative sentiment in the market has been blamed on the very public downfall of mortgage lender Northern Rock, Britain’s biggest victim of the global credit squeeze.

Mortgage approvals recorded by the Bank of England, a good indicator of the future health of the housing market, fell in November to their lowest level in nearly three years, while mortgage lending slowed sharply, reflecting the tighter credit conditions.

The British subprime sector has expanded in recent years, but the number of loans granted to people with poor credit ratings here is nowhere near those issued in the United States, where the crisis originated. While one in five U.S. mortgages are in subprime, that sector accounts for just 6 percent of the entire home loans market in Britain.

Meanwhile, the Andersons are waiting. “It doesn’t feel like putting our life on hold,” said Dave Anderson. “There’s the opportunity to potentially pick up a really nice house for 20 percent or 30 percent less – that’s much better for us in the long term.”