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The American essayist Ralph Waldo Emerson, writing in 1856, captured a persistent truth about the Englishman: "Born in a harsh and wet climate, which keeps him indoors whenever he is at rest ... he dearly loves his house." Little has changed since then; the English still lavish attention on their homes. Any whiff of news about the U.K.'s housing market is enough to make the front pages. When British TV channels aren't airing advice on buying or selling homes, they're offering lessons on how to do them up. "Domesticity," Emerson noted, "is the taproot which enables the nation to branch wide and high."

But could that passion for real estate also drag the nation down? After trebling in the decade to last October, the average U.K. house price fell for the sixth straight month in April, according to Nationwide, a British residential lender. At $354,000, that price is 1% lower than it was a year ago, marking the first annual fall since 1996. Banks, still nervous about lending to one another following the collapse of the U.S. subprime market, are being no less careful when it comes to their loan customers: tougher lending criteria and higher mortgage rates have discouraged British house hunters already struggling to meet bloated food and fuel bills. Repossessions are expected to soar by two-thirds this year to some 45,000. The result: property prices look set to fall further. Halifax, Britain's leading mortgage lender, forecasts "a mid-single-digit percentage decline" in 2008; Capital Economics, a London-based consultancy, predicts a slump of as much as 20% between last fall and the end of 2009.

Granted, it is not just Britain's housing market that is seeping value. Fallout from last year's subprime meltdown or rising interest rates have dented property sectors from Las Vegas to Valencia, Warsaw to Sydney. By February, house prices in 20 key U.S. cities were 12.7% lower than a year earlier. And after rising almost threefold in the decade through 2006, prices in Ireland slumped by around 7% in 2007. Similar booms have come to an end in Spain, Poland and Estonia.

But the still nascent downturn in the British market exposes more than just property investments. The social and cultural value of home ownership in the U.K. makes any slump more difficult to shoulder. The roots of this love affair with property go deep. For centuries, a house of one's own gave an Englishman not just privacy and status; until 1832, those in the countryside had no right to vote without property of a certain value. Small wonder, suggests Stuart Lowe, a housing expert at the University of York, that the English dream of home ownership has become "a deep cultural issue."

Yet it wasn't until well after World War II that a majority of Britons became homeowners, thanks largely to the encouragement of successive governments. Restrictions imposed on landlords decades earlier had made renting out real estate less lucrative, sparking a gradual sell-off of private properties. A popular scheme launched in 1980 by newly elected Prime Minister Margaret Thatcher granted public-housing tenants the right to buy those homes for knock-down prices. The measure was cheered by one Thatcher minister as "one of the most important social revolutions of this century." By 2005, 70% of U.K. homes were owner-occupied, less than in Spain or Italy, but above the E.U. average and well beyond the levels reached in France or Germany.

The British are all the more exceptional in their willingness to bet big on property. Mortgage debt as a percentage of the country's disposable income stood at 125% in 2006, compared to 103% in the U.S. and 71% in Germany. One reason is that British homeowners came to fervently believe that bricks and mortar almost inevitably reward investors with a juicy return. After all, the FTSE 100 share index of Britain's biggest firms rose just 2.7% in the 10 years to May, while the average house price shot up 178%, according to Nationwide. That increase produced "a massive reservoir of equity," says Lowe, making British homes "not just a shelter, but increasingly a bank that people could draw on." And draw they did: over the past two years, Britons have borrowed some $200 billion against the value of their homes.

A modest fall in prices is hardly the end of the world for those who are still sitting on mountainous profits amassed during Britain's years of plenty. But for more recent buyers, now stuck with rising interest payments on ever less valuable houses, there is mounting fear — and a belated realization that property is not a one-way bet, after all. "It's always good to remind people that investing in long-term, expensive assets is a risky business," says Michael Ball, professor of urban and property economics at the University of Reading Business School. The current wobble has "brought a good dose of realism to the market."

It has also put an end to cheap credit. Mortgage lenders were happy to coddle British homeowners with easy money during the boom years, helping to push the rate at which U.K. house prices rose over the past decade far higher than economic drivers like income growth and low interest rates could justify. Now banks are throttling back. They have slashed the range of available mortgages and cut the amount they'll lend relative to the value of a property; no more can U.K. customers borrow more than a home is worth, as many had done.

A series of interest-rate cuts by the Bank of England since December has so far failed to tame mortgage interest rates; the average rate on a two-year fixed deal with a modest deposit rose to 6.94% in April from 6.6% the previous month. Annual inflation in the U.K. hit 3% in April, well beyond the government's 2% target, making further cuts soon highly unlikely. The central bank offered in late April to swap around $100 billion of lenders' old mortgage debt for safer government bonds, but the effect on the housing market has been muted. "It certainly isn't going to reverse all the changes in lending policies we have seen in recent months, or restore mortgage lending to its former levels," Iain Cornish, chairman of the Building Societies Association, said of the Bank's scheme. "But it should help to underpin confidence."

When the U.K. housing market last hit the skids, with prices slipping by a third in the six years from 1989, unemployment and interest rates were both higher. This time around, the hope is that Britain's shortage of housing supply may help prevent such a bloody crash. The rate of housebuilding in Ireland and Spain — both of whose markets have overheated in recent months — more than doubled in the decade to 2006. In the U.K., the increase was just 12%. Demand ought to remain robust, says Ball, with "long-term rising incomes bashing against the cliff of tight supply."

Whatever it takes, British Prime Minister Gordon Brown will be praying that the market stays afloat. Trailing in the polls behind the Conservative opposition, the last thing his beleaguered Labour government needs is a messy collapse of the housing sector. Labour was in opposition during the last slump, and has since invoked it as a peril of Tory government. To head off the worst this time, Labour ministers announced plans on May 9 to extend debt-advice services and free legal representation to those at risk of losing their homes. Yet just days later, as Housing Minister Caroline Flint entered Brown's Downing Street home, her briefing notes — inadvertently visible to a throng of press photographers — revealed her own department's fears that "we can't know how bad it will get." Brown knows a painful downturn could help to turf him out of Downing Street. Like many other Britons, he'd like a market that at least lets him hang on to what he's got.

• ADAM SMITH/LONDON
• Caught up in a global real estate slump, Britain is seeing its love affair with property put to the test