Huh? Come again? Surely lenders move their interest rates only in line with the ECB, you're probably thinking.

Actually they don't. Unless it is written in your contract that your mortgage moves in line with ECB rates or Euribor rates . . . ie unless you have a tracker or fixed mortgage . . . then you are entirely at the mercy of the lender.

There are few controls over interest rates and the Financial Regulator has stated that it doesn't see the need for any. The only limit for interest rates is the one that applies to moneylenders . . .

169%. And as mortgages are currently around 5%, there's plenty of room for upward movement there. If a lender needed to raise more money, it could charge you anything up to 169% in the morning. Even if it didn't need to, it could do it anyway just for the hell of it.

Most lenders don't take advantage of this little loophole, as it wouldn't be good for business (although one mainstream lender has in the past charged errant borrowers over 30% on their mortgages. ) But banks keep the option open . . . just in case.

The way things are shaping up, "just in case" may be around the corner. Nua Homeloans is one of several sub-prime lenders in a booming area of the mortgage market which target people who have difficulty getting loans elsewhere.

It is believed that other sub-prime lenders either have already instigated hikes or are about to. And mainstream banks could even follow suit.

A spokeswoman for Start, one of the biggest of seven sub-prime outfits, said it was considering an increase. She wouldn't elaborate on how big that increase might be but maintained that it wouldn't apply to existing customers . . .just new loans . . . if it were implemented.

Newspaper reports claimed that it could be in the region of 0.75%-1%. That's three to four times more than the ECB increases we've been enduring. But it's certainly not unfeasible. In fact, it could get worse. Already sub-prime lenders in the UK have lashed up to 2.5% on their customers' mortgage rates.

That's a crippling increase, particularly for borrowers who had credit problems in the first place and were already paying over the odds. Now there is a real prospect of a spate of repossessions with sub-prime lenders already responsible for a massive hike in court cases over mortgage debt.

And don't think that you're safe just because you are with one of the mainstream lenders. Unless you are on a tracker or fixed mortgage, there's nothing to stop them from jacking up their rates too. Only this week Bank of Ireland's chief economist Dan McLoughlin warned that banks could bring in a general round of increases as their cost of funds go up in jittery money markets.

So what's spooking the banks? The same thing that's been wiping billions off stock markets around the world. Subprime lenders, that's who. The business here is heading for 3bn. In the UK it's worth over ten times that. And in the US it has gone through the roof. So problems here become everybody's problem.

It works like this: A sub-prime lender thinks up a funky name and uses sexy marketing to make it seem much more appealing than those traditional old banking fuddy-duddies. It borrows money on the money markets and lends it to people who can't get loans elsewhere at a much higher rate of interest. Then it "securitises" these loans . . . sells them on to investors . . . and goes back to the money markets for more.

Mainstream banks saw these upstarts making big profits and many have got in on the act . . . using a subsidiary so they don't sully their own brand. Recently blue-blood New York finance house Morgan Stanley followed Merrill Lynch and many other big banks into the UK sub-prime market by buying a local operator, (with a typically upbeat name. . .Advantage).

What happened next? Sub-prime lenders in the US went too far (surprise, surprise). Their credit assessment became dodgier and dodgier. Then the loans started going bad, real bad. Small mortgage companies started to go bust.

Investors got leery and started demanding higher-risk premiums for investing in sub-prime mortgage securitisations. Sub-prime lenders passed this on to their already stretched customers in the form of higher interest rates (as they are just starting to do now here).

The customers couldn't repay the loans and even more started defaulting on payments and having their homes repossessed. Securitised mortgages' credit ratings were marked down further and the whole shebang spiralled into an even worse mess.

Then the major players started to go down, including some of the biggest mortgage lenders in the US. Panic spread through the markets, leading to a global shares meltdown in recent weeks, followed by a credit crunch as banks stopped lending to each other because they don't know the extent of the problems. (Hence the prospect of interest hikes now for all borrowers. ) The US property market, already teetering, was shoved over the edge into a crash. But of course all that couldn't happen here. Or could it?