Rumours of the demise of Britain’s housing market have been greatly exaggerated, but could contagion from the United States finally kill off the boom?

Do not underestimate the pain of America’s property market. Analysts expect prices to fall by about 10 per cent, which Bill Gross, the managing director of Pimco, said would be “an asset deflation in the US never seen since the Great Depression”. The downturn has exposed canyon-wide gaps in the country’s mortgage market, notoriously in the sub-prime sector, and the repercussions are still unfolding.

Homeowners in Britain may be worrying whether the shake-up in mortgage lending could spread across the Atlantic and pull the rug out from under their house prices. The answer is “yes” and “no”. Yes, this will affect the demand side. Risk has been repriced and institutions are not going to allow cheap credit, as they have done in the past three or four years. This pattern is not confined to America.

Geoffrey Dicks, of RBS Financial Markets, sees a tightening of lending conditions, with mortgage companies insisting on tougher earnings multiples as their funding from the wholesale markets dries up. That will mean a widening of the spread between interest rates on mortgages and the base rate.

Since the Bank of England is now looking less likely to increase base rates than it was a few weeks ago, the net effect may be little different. Yet Britain’s market will be cushioned by supply conditions, which are vastly different to the US. As a report from American Express noted yesterday, housing supply has risen by just 20 per cent in Britain over the past seven years, compared with a 42 per cent rise in America.

A construction squeeze has so far kept Britain from suffering a similar fate to America and it may yet prevent a slowdown turning into a crash. Ireland may not be so lucky. Housing supply rose a staggering 210 per cent over the same seven-year period. The market is widely seen now as a bubble about to burst.