The mood of most British people is inextricably linked with house price statistics. An upward surge in the indices induces a state of giddy wellbeing; figures indicating a downward trend cause consternation and confusion.

The strength of these feelings is easy to explain: the bulk of our personal wealth is tied up in bricks and mortar. The equity in our homes has trebled over the past decade to £2.5 trillion – more than twice the value of outstanding mortgages. This indicates that we have a substantial cushion even if prices decline farther, as is forecast even by institutions such as Halifax, who previously predicted that prices would go neither up nor down in 2008.

But these details of our still considerable housing wealth received less attention yesterday than Halifax’s announcement that prices fell by 2.5 per cent last month, news that sparked fears of a replay of the slump of the early 1990s. That collapse, though, was the product of a near-doubling in interest rates, high unemployment and the sudden withdrawal of tax relief on mortgage interest.

None of these conditions applies today. We are facing an entirely different set of circumstances that could produce some unpleasant results, unless institutions such as the Halifax can swiftly formulate strategies to repair the self-inflicted damage from their involvement with toxic sub-prime debt.

Formerly open-handed mortgage lenders have become suspicious, turning away borrowers without substantial deposits, penalising in particular those who have borrowed against the value of their properties – those for whom the house was not so much a castle as a cash machine. Alliance & Leicester is among those likely to raise its rates in the next few days, even though the Bank of England is likely to cut the base rate tomorrow.

The relationship between bank and prospective borrower could start to resemble that between the Dad’s Army bank manager Captain Mainwaring and his customer: unless your credentials are impeccable and your demeanour meek, rejection is a possibility.

The direction of mortgage rates is now almost entirely disconnected with the Bank of England’s decisions. Suddenly anyone looking for a home loan must watch the movements in three-month Libor, the arcane rate at which banks lend to one another, since that now determines the price of most mortgages. This is one acronym with which most people did not expect to become familiar, the workings of the international money market not being a subject of universal fascination.

House prices remain, however, a subject in which we all have an abiding interest. The indications are that most people are opting to sit tight through the slowdown of 2008. Higher mortgage repayments, combined with larger fuel and food bills, are making people disinclined to trade up: we are more likely to watch people on TV property shows move houses rather than sample the experience ourselves.

The pain will be considerable in certain sectors. Richard Donnell, of Hometrack, is predicting double-digit declines in the values of city-centre executive flats. But in London and the South East, there is still competition for family houses put up for sale carefully priced and smartened up.

We all knew that the 171 per cent average increase in house prices seen in the past decade could not be sustained. The boom was greater than anyone could have imagined; the consequences of its ending will continue to be unexpected and occasionally shocking.