With a recent change inbreeding is supposed to have a negative effect. It adds extra negative traits that don't count against the regular traits pool.
Inbreeding is mating with the father or mother or when the two animals have the same father or mother. Basically if you only can find two horses you'll be ok in three generations. But it my might be better to mate with your neighbours horses.
See [http://wurmonline.com/forum/index.php?topic=55489.msg503824#msg503824 Rolfs forum post] for details.