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: Normally when I return from my annual summer sojourn to see family in America, I temporarily hate my London townhouse. It looks small and dark, unlike my folks' bright, rambling colonial. I notice every flaw, from the wind rattling through the kitchen windows to the leaky shower in our family bathroom.
But this past September, I leaned lovingly into my paint-chipped front door as I inserted the key. A small miracle had occurred while we were away: Our application for a new mortgage had been approved. The house we had owned for nearly a decade would remain ours, at least for a few more years.
This was an especially lucky break considering that if we had applied eight weeks later, we would probably not have qualified - an outcome that has become commonplace in the through-the-looking-glass world of London real estate.
My husband and I were lucky first-time buyers back in 1999, (see earlier article at iht.com/articles/2002/06/01/mcents01_ed3_.php) benefiting from the early days of overly generous bank loans that we now know helped build the glacier leading to the world's current financial meltdown. We were given a 95 percent mortgage, with absolutely no worries on the part of our lender that the loan was four times our annual income and that our profile - two journalists, one of them freelance, living in London with three small children - was hardly that of the Rockefellers.
Three years into owning our house, it was worth 50 percent more than what we paid. Feeling rich, we refinanced in 2004, borrowing another 10 percent so we could put in new floors, a new bathroom and some built-in cabinets. Thanks to a friend's personal financial adviser, we didn't even shop around for a good deal: The adviser did it, showing up ten days after we called him with a new mortgage at a lower rate.
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In 2006, our fixed-rate time limit ended and we once again had incentive to shop around. This time, my husband secured a new, interest-only mortgage after just a few simple phone calls. Our monthly payments would be even lower than before, though with this type of loan we would not be reducing the principal. Yet seeing that most mortgages are interest-only for the first few years anyway, it seemed a good option. And when we learned that the two-year fixed rate was just 4.59 percent, it seemed too good to be true.
Turns out it was.
This past February, Northern Rock - a bank that at the time accounted for one in five British mortgages, including ours - had to be bailed out by the government because it over-leveraged. The bank's demise left us staring at a whopping 6.8 percent interest rate if we didn't refinance by June. That meant our monthly mortgage payment would increase by more than a third.
Still, in spite of the difficult economic climate, we felt pretty smug about finding a new lender. My husband had just started a new and well-paid job; my freelance writing business was going strong; we had some savings in the U.S. stock market; and we only needed to cover half the value of our house. Other people might have trouble getting a mortgage, but we wouldn't: we were the paradigm of prudence, with good credit (we never miss a payment) and frugal spending habits.
By the end of April, we still had not found a new mortgage even with the help of our adviser. There was nothing competitive in the marketplace, he said - code for “affordable” - and he urged my husband to look for himself.
One week later, we found ourselves in a meeting with a mortgage broker at one of the world's largest banks. As he thumbed through three months of our bank statements, our U.S. and British tax returns, my husband's employment contract and various other documents attesting to our financial health, we joked around, feeling both wealthy and worthy of his time.
Two hours later, we left his office feeling poor and pessimistic.
“This is tough,” the banker had told us, “but I am not sure you will be approved.” My husband had only been in his new job for a short while, therefore it might not work out; our monthly costs were too high, with three children in private school; our stock holdings in America could go down (but they could also go up, we said) and I was still self-employed.
But the banker's last question was the most disturbing: “How will you pay back this loan if you had to?”
“How does anyone pay back a house loan?” I said. “We would sell it and downsize.” The banker looked at us, said nothing, and jotted something down. Later, we learned from a friend in real estate the true thrust of the question: “He wants to know how you would repay in a negative equity situation” - in other words, if the value of the house fell below the value of the mortgage loan.

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: The financial panic has taken its toll on everything from fine art to used Aston Martins. Now private schools - once thought untouchable - appear to be feeling the pinch.
“Public,” or fee-paying, schools in Britain - where a year's tuition can easily cost £15,000, or about $23,000 at current exchange rates - are reporting shrinking waiting lists. International schools, which benefit from steady demand from embassies and nongovernmental organizations like Unesco, are cutting their enrollment projections because of uncertainty about foreign postings while the crisis lasts.
And although acceptance for the coveted spots in New York private schools will not be known until February, there are persistent rumors that more families are asking for financial aid, and some may even drop out.
As the gap between rich and poor has widened over the past two decades, parents have increasingly turned to fee-paying schools to ensure that their children have the opportunities they had - or wish they had had.
New York is the extreme example, with parents willing to undergo an elaborate admissions process for the right to pay up to $30,000 for their toddlers to go to a top preschool. Parents who win that battle and move on to the city's elite private schools can expect to spend about $400,000 by the time their children get to university level.
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But the phenomenon is also evident globally: from France, where more families are sending their children to Catholic schools regardless of their religion, to Germany, where independent schools now make up 7.9 percent of all schools, up from 4.5 percent in 1992, to Australia and even China.
Russ Prince, president of Prince & Associates, a consulting firm that studies the habits of the wealthy, said private school typically was the last expense parents were willing to cut back in a downturn. They will remortgage homes, take modest vacations, put off buying a new car or make do without household help, Prince  said.
Some are willing to sacrifice far more. A study commissioned this year by BankWest, an Australian subsidiary of the British bank HBOS, found that among parents with annual incomes of 75,000 to 100,000 Australian dollars, or $50,000 to $65,000, who send their children to private school, more than 10 percent were spending as much as half their income on school fees. Fifty-three percent of Australian parents who sent their children to independent schools said they found it difficult to afford.
Parents typically see high fees as the price of funneling their children into the best universities and jobs. But many are also paying to reap other rewards.
“The education is believed to be excellent,” Prince said, “but at the same time, they have the connections and ability to move your kid to the next rung. It keeps them moving into an environment where you keep meeting people with more influence.”
In Europe, where social connections are forged more cautiously, other factors have influenced the increased interest in independent schools.
Among them are German and Swiss state schools' poor performance on the Program for International Studies Assessment, known as the PISA reports, which are published every three years by the Organization for Economic Cooperation and Development. The last PISA report showed that 15-year-olds who attend private schools perform better in mathematics, reading and science than students enrolled in public schools.
In France, government-supported Catholic schools cost about €200 per month, including the expense of lunches. The French have been turning to them as they perceive the state schools as increasingly chaotic, and because Catholic schools have a better record of their students' passing the baccalauréat exams, a requirement for college entrance.
For more ambitious French parents, there are also private preparatory schools that smooth entrance into the grandes écoles, the elite universities that have traditionally turned out France's leaders.
Milojka Joksimovic and her husband arrived in France from Yugoslavia a generation ago. She was trained as a literature teacher, he as an artist. Their credentials meant nothing in France, where they found work as a swimming pool attendant and a plumber, respectively. But they vowed that their children would get educations that would ensure their future.
When their youngest, a daughter, turned out to excel in math and science, they decided to send her to Sainte-Geneviève in Versailles, a prep school known to have broad success in getting students into the grandes écoles. Under a sliding scale, the couple pay €5,000 to €6,000 a year, or around a sixth of their net income. A banker who made $120,000 would pay close to $20,000 for his child.
While Joksimovic realizes that there is a financial crisis going on, there is no thought of abandoning the plan. “It is a financial investment,” she said.

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: When John Kapon, president of the New York wine merchants Acker Merrall & Condit, touched down in Hong Kong this month for his firm's autumn auction, he said he had no idea what to expect.
Would his Asian clients, known for their insatiable demand for rare Bordeaux and Burgundy, buy big or hold back? Having recently displaced Americans as the leading purchasers of fine wine, wealthy Asian buyers are an important indicator of trends in prices.
The worsening global economy did not derail the autumn sale, but it did throw it off. While the auction did bring in $6.7 million, some 13 percent of the lots went unsold, compared with only 8 percent at the previous Hong Kong auction - held in May before the meltdown on Wall Street. Many of the lots that did sell in November, according to Kapon, were purchased at or below preauction estimates.
Among the unsold lots were 12 bottles of vintage 2000 Château Haut-Brion valued before the sale at 60,000 Hong Kong dollars, or $7,735, and three bottles of vintage 2005 Romanée-Conti, a sparely produced grand cru classé Burgundy whose preauction value was set at 200,000 dollars.
That no one raised a paddle for these two lots says more about collectors than the wines themselves. The fact is, after nearly three years of frenzied buying, fine wine collectors are pushing back, snubbing that which looks overly inflated and only buying when the price seems right.
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“The estimates were a bit aggressive and based on a bull market in the spring,” Kapon acknowledged. At the May auction, Kapon's firm had hauled in a record $8.2 million, including a hard-to-find case of Domaine de la Romanée-Conti 1990 that sold for an unprecedented $242,308.
By this month, however, wine buyers had found their bearings and were ready to make only the most judicious purchases. “Most lots still found eager buyers, even though bidding was more 'civilized' over all, and prices were relatively solid,” Kapon said.
The autumn sale suggests a certain financial fortitude among Asian fine wine collectors less evident among their counterparts in Europe and the United States. At its fine wine auction in New York on Nov. 2, Sotheby's sold only 65 percent of its offering. Its rival auction house Christie's, meanwhile, sold 75 percent of its lots at a fine wine sale in Geneva on Nov. 18.
While Bordeaux and Burgundy blue-chips are still seen as havens, bidders at the Acker Merrall & Condit auction snapped up plenty of Champagne, Rhônes, and California cabernets, sometimes at a premium.
Among the sale's top sellers in Hong Kong was a lot containing 12 bottles of 1992 Screaming Eagle, a coveted cult wine from the Napa Valley of California that sold for 871,200 dollars. Meanwhile, a four-bottle lot of 2000 Châteauneuf du Pape Cuvée de Capo from Domaine du Pégaü in the Rhône Valley sold for 15,488 dollars, above its presale estimate.
The push-back by collectors is being felt not only at auctions but in the retail sector, too. Simon Staples, sales director at Berry Bros. & Rudd in London, quoted a case of 2000 Château Lafite Rothschild, priced at £10,000 in June, before a steep drop in the pound against the dollar, now selling for £7,800, or $12,000. A case of 2005 Château Mouton Rothschild, priced at £6,500 in June, is now available for £5,400. Staples deemed both “best buys” at the reduced prices, adding to that list the 2005 Château Palmer, currently listed at £2,400 a case.
Would-be collectors encouraged by such prices might be less so when they understand that such declines, while sharp, only put these wines back at their 2006 levels.
“You are only seeing the insanity stop at the top,” said Serena Sutcliffe, wine director at Sotheby's in London.
In particular, Sutcliffe is referring to the three-year run-up in prices for coveted “investment wines,” including first-growth Bordeaux from the 2000, 2005, 1990 and 1982 vintages, as well as always hard-to-find Domaine de la Romanée-Conti, among them La Tâche and Romanée-Conti.
Having attracted the most speculative attention from investors - including professionally managed wine investment funds - investment wines are the most subject to price volatility.
Liv-ex, a British fine wine exchange that tracks pricing around the globe, provides telling evidence of this trend. Its Liv-ex 100 fine wine index, which tracks the price of top-tier investment-grade wines primarily from Bordeaux and Burgundy, was down by 7.4 percent at the end of October.
In contrast, the Liv-ex 500 fine wine index, a more broad-based benchmark featuring collectible wines from around the world, showed a 12.3 percent gain over the 12-month period ended in October.

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The British economy contracted by 0.5 percent in the three months through September, ending a string of 16 years without a negative quarter and almost certainly indicating that an economic losing streak has begun.
Mervyn King, the governor of the Bank of England, said as much, and even if he had kept his own counsel, the same message is clear from the plunge in stocks and the pound.
From their peaks earlier this year, the FTSE-100 index lost as much as 40 percent of its value, leaving it close to a 12-year low, and the pound was down more than 20 percent at a five-year low. That double-whammy meant that dollar-based investors could pick up British stocks for well under half of what they cost a very short time ago, and history suggests that they should.
King's statement late last month - “it seems likely that the U.K. economy is entering a recession” - ignited a fresh wave of selling in stocks and sterling, but investors might have been better off taking it as a buy signal. A rule of thumb during bear markets is that by the time a recession is acknowledged by a country's leaders or in news headlines, the worst of the selling is over and a reversal is due.
That is how several veterans of the British markets see things; they contend that the twin sell-offs have provided a solid opportunity to buy shares of excellent companies at bargain prices. Valuations account for just about any negative developments, but nothing positive, that the economy is likely to encounter, they say.
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“Everyone is expecting this recession to be unusually long and deep, and that's almost certainly right,” said Alan Brown, group chief investment officer for Schroder Investment Management. But even if the downturn runs twice as long as the postwar average of one year, and corporate earnings fall 50 percent from their peak instead of the usual 25 percent or so, he added, British stocks would trade at a “hardly demanding” price-earnings multiple of 13. As for the pound, Brown thinks it has gone from “very overvalued to cheap.”
That leaves foreign (in this context, non-sterling-based) investors with two chances to win. If the pound recovers, they can profit even if stocks go nowhere. If the pound remains depressed, it could underpin the stock market.
Max King, a strategist at Investec Asset Management, pointed out that a cheaper currency is often very good for business, especially for exporters or companies with extensive overseas operations.
“The market has largely ignored the benefit to U.K. companies of the fall in sterling,” King said. He highlighted research at the London Business School showing that stock markets in countries with devalued currencies tend to outperform other markets by more than the amounts by which their currencies fall.
To make the most of the weakness in sterling, he would focus on exporters that have the bulk of their production in Britain or multinationals with heavy foreign earnings. He declined to recommend individual stocks, but he offered the jet engine manufacturer Rolls-Royce and the drug maker GlaxoSmithKline as respective examples of the two types of companies.
Tony Dalwood, head of public equity at SVG Investment Managers, is a fan of Glaxo and another large pharmaceutical company, AstraZeneca. He finds both “very cheap.”
Another favorite of his is Vodafone, the mobile phone service provider, which owns nearly half of Verizon Wireless in the United States.
Dalwood said he was “beginning to allocate resources to companies with more U.S. exposure” as a currency and macroeconomic play. He expects that “the U.S. will lead the globe out of recession” and that investors will take a circuitous but low-cost route into the market by buying shares of British companies with strong American activities.
There is no guarantee that buying British stocks will be profitable in the short run, he acknowledged. Just because they are cheap does not mean they won't get cheaper. But while many shareholders raise the prospect of a prolonged recession to justify selling, Dalwood says he thinks that the decision is more emotional than rational and that investors who can make a three-to-five-year commitment will be glad they bought now.
“Greed has driven bubbles on the way up,” he said, “and fear is driving one the other way.”
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: Having lived in Japan for many years, John Harris knows the value of conformity. Here, people like things to be standard and predictable - especially when it comes to financial matters.
So when Harris started looking for a mortgage this year, he knew he would not have an easy time: a foreigner without permanent resident status, no job contract because he is self-employed, and a non-Japanese spouse. And he was looking to finance the purchase of a somewhat unusual property: a house surrounded by lush green forest that is a noncommutable two hours by train from central Tokyo.
Yet through the help of a loan broker, Harris, a speechwriter, ended up securing a line of credit from a Japanese bank sufficient to finance his dream home.
“We were over the moon when our loan was approved,” Harris said. “It's not easy, but today it's possible to get a loan in Japan if you are persistent.”
At a time when Americans and Europeans are having trouble getting credit to buy a house or a car in their own countries, their compatriots living in Japan are borrowing tens of millions, and sometimes hundreds of millions, of yen from local lenders for homes.
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It is a far cry from 10 years ago, when Westerners could not even get in the door of most mortgage lenders and even ethnic Koreans faced hurdles.
But today, most big Japanese banks are open for foreign business, according to brokers and borrowers. The local banks also face competition from foreign institutions like Commonwealth Bank of Australia, National Australia Bank and GE Consumer Finance, all of which offer loans for foreigners living in Japan.
Housing loans are still a solid business in Japan, where total mortgage lending was ¥14.8 trillion, or $155.12 billion, for the year through April, according to the Bank of Japan.
For Japanese banks, lending to foreigners - and to single women, independent contractors and other types of people traditionally regarded as being on the fringe - has come as part of a decade-long transformation in their business. As the capital markets began to serve as a bigger source of financing for corporations, Japanese banks have placed greater emphasis on retail banking, especially home loans.
Lending to foreigners, which none of the banks say is done in a large scale or even advertised, has become possible as banks reconsidered their one-size-fits-all approach to lending, which favored salaried people working for large companies.
The minimum requirement is that a foreign applicant have permanent resident status in Japan. “There are many rules and principles, but there are also many exceptions,” said Tony Collins, a loan broker with IFG Asia Mortgages in Japan, part of IFG Group of London.
Takashi Takeuchi of Bank of Tokyo-Mitsubishi UFJ, Japan's largest bank, said that “if the applicant has lived in Japan for an extended period of time, has stable employment with a Japanese company, et cetera, there is no reason not to extend the loan,” he said.
From the borrower's side, it is an easy decision to use a loan to buy property in Japan. Interest for mortgage loans starts around 1 percent to 2 percent for variable rates and about 3 percent for fixed rates, and the terms can be as long as 35 years. The average yield on rental property is around 6 percent.
Richard Harris, Tokyo branch manager at Commonwealth Bank of Australia, said that he commonly found excitement among customers at conferences his bank organizes. At a recent conference, “the thing that stood out was the reaction: 'I didn't know you could do this in Japan,”' he said.
“Every time I talk to expats, you see their mind just clicking over as soon as they hear those numbers and the thought of buying properties suddenly seems much more appealing to them.”
As banks internationally are tightening credit, the amount of a typical mortgage has shrunk from 80 percent of the purchase price to between 50 percent to 70 percent for banks in Hong Kong and Singapore. But Collins said that in Japan, “it is still possible to get 80 percent, which is actually the standard, and sometimes even 100 percent.”
Collins said his foreign clients borrow on average ¥65 million and up to ¥300 million for property purchases. While Japanese banks' offerings are still quite traditional, foreign lenders offer special facilities like home equity loans, choice of currencies and the chance to use a property from the home country as collateral.
Lately, however, this flexibility has proven to be risky sometimes.
The Australian dollar has swung wildly against the yen in recent months and is now down more than 30 percent since this past summer, driving down the value of Australian property held by Japanese residents. This has led to margin calls from lenders to borrowers who bought property in Japan collateralized by their Australian homes.
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