Slump takes swagger out of once-booming U.K.

LONDON - Glancing at her mortgage bill, Jennifer Wilson can’t help but lament that a portion of her monthly payment covers the cost of her dalliance with decadence.

Like many 20- and 30-something Britons swept up in the country’s recent consumer-spending and property boom, Wilson found lenders happy to provide her with enough cash to buy an apartment — and far more.

Now, she’s feeling the pinch.

When she sought 90,000 pounds (about $130,000) to buy a cozy one-bedroom flat in Edinburgh in 2005, Wilson’s mortgage broker told her she was eligible for up to another 75,000 pounds (about $108,000).

“They tried to throw money at me,” said Wilson, who works as a manager in Britain’s publicly funded National Health Service. “In the end, I took an extra 2,000 pounds and spent 1,500 pounds of it on a girls’ weekend in New York.

“I thought I was Carrie Bradshaw. We went on a ‘Sex and the City’ tour and shopped for designer clothes. But every month when I get my bill, I feel ill when I think that those clothes are now part of my mortgage.”

New realities
Raised in an era of overwhelming affluence and conspicuous consumption, a generation too young to have weathered Britain’s last recession, in the early 1990s, is now facing the realities of very different way of life.

The devastating fallout from the U.S. sub-prime crisis has had a big impact on this side of the Atlantic. The credit crunch has starved the housing market of buyers, sending prices plummeting. Hundreds of layoffs are being announced daily.

It wasn’t supposed to be this way. Gordon Brown, now Britain’s prime minister after being in charge of the country’s monetary policy for a decade as finance minister, famously claimed in 2006 that there would be “no return to boom and bust.”

Many homeowners and young professionals bought into his bold prediction, taking advantage of soaring property prices and a strong currency to embark on extravagant lifestyles featuring the latest fashions, frequent foreign vacations and expensive dinners at restaurants run by celebrity chefs.

Excess became a way of life for many Britons. Greed became good. 

Dangerous game
In Edinburgh, where even the previous recession hadn’t stopped home prices from rising during any month since 1971, the so-called experts insisted that you simply couldn’t lose money in the property game.

And when that 37-year streak came screeching to a halt in August, with average home prices in the city dropping 6.5 percent year-on-year, it was clear that Britain’s property bubble had officially burst.

The government-set base interest rate has been slashed six times since October and now sits at just 0.5 percent — the lowest in the Bank of England's 315-year history. But, haunted by the fresh memory of toxic assets, most British banks are unwilling to lend to anyone who can't come up with a 20 percent down payment, the equivalent of about 30,000 pounds ($43,000) on a typical home.

It’s a far cry from the height of the property boom in late 2007 when many lenders were offering would-be home buyers mortgages of up to eight times their annual income.

But by early 2008, as the credit crunch bit, such extravagances — including the popular 125 percent mortgage (typically a 95 percent mortgage with a 30 per cent unsecured loan on top) — vanished from the market.

'We all got greedy'
The decline in credit has sucked the air out of the market. Three apartments in Wilson’s tenement block are currently for sale but buyers are nowhere to be found.

Video   In Europe, things are tough all over March 31: As more companies cut spending and jobs to weather the global slump, Europe's economy is grappling with the worst recession since World War II. NBC's Jim Maceda reports. Nightly News

Sitting in the cramped living room of her ground-floor home in Edinburgh's Leith area — a port neighborhood grittily immortalized in Irvine Welsh's cult novel "Trainspotting" that today features many trendy bars and restaurants catering to an upwardly mobile clientele — Wilson admits that she that was “arrogant.”

“We all got greedy,” adds the straight-talking 33-year-old who had a modest upbringing in a nearby commuter town. “I thought buying a flat was a license to print money.

“I spent 90,000 pounds on a flat where I can walk from my kitchen to my bedroom in five steps. Now I’m terrified. My flat is unsellable.”

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