European property began to freeze over last year, with almost every European housing market taking a turn for the worse and prices tumbling fast in Ireland and Germany, new research shows.

The majority of housing markets slowed sharply last year, according to the annual European housing review from the Royal Institution of Chartered Surveyors. Cyprus and Iceland were the only countries to buck the trend, while prices in Poland soared for another year, as money earned by immigrants in the UK poured back into Eastern Europe.

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By James Saft

LONDON (Reuters) - Buy-to-let property investment is Britain's version of subprime and the Northern Rock debacle will prove to be the needle that pops the bubble.

Lending terms will be tightened, rates will rise, and most important of all, confidence will be hit. The army of small British property investors now taking on risk on a heroic scale will realize that an investment that costs more to own than it generates in income and stops rising in price is a bad idea.

Buy-to-let, which now accounts for about 12 percent of British mortgage lending, is the practice of buying property, typically borrowing the vast majority of the price, and renting it.

And like so many bubbles before, it has been a great business over the past decade as property values nearly tripled, making fortunes for many investors and giving lenders who were prepared to take higher risk rocket-fuelled growth.

The lesson of the Northern Rock saga, indeed of the global financial crisis, is that credit, confidence and rising asset prices form a self-reinforcing cycle on the way up, encouraging ever greater risk taking.

But that cycle can turn vicious on the way down, as the lines of depositors seeking to get their money back from Northern Rock on Monday showed.

And though the British authorities have, quite prudently, stepped in to bail Northern Rock out and pledged to make good any losses of its depositors, this is the moment when the spell is broken.