OK, there's this Kiwi couple living in London. They're currently renting a one bed place in London's South Hampstead.
She's pregnant, he's starting a new business which she will do some work for. They expect to take £30k out of the expected business turnover of £100k a year to pay themselves.
Oh, yes, they have a property in NZ which they're renting out, but that doesn't cover the mortgage, so they're spending four hundred a month on that. (Until next year, when their fixed interest rate deal finishes and the rate they pay goes up by about 2%!)
They're looking to stay in the UK for at least five years and may want to go home afterwards. They're looking to buy somewhere to live in during that time and do have about £30k in savings, which they're reluctant to touch.
Who should be put in front of a wall and shot?
a) Them. They're paying £1,950 – two grand, basically – a month to rent a one bedroom place. That's £24k a year, which would leave them £6k, i.e. that 30k must be net of tax. OK, South Hampstead clearly isn't cheap (even if it probably translates as Kilburn) but come on, cut your cloth according to your means. You don't need to live there and it'd be trivial to get more space for much less money.
b) At least two mortgage companies. One will apparently loan them £500k on these figures, if they hide the NZ property from them, based on having a 10% deposit. Half a million quid?!? Another will do a £405k interest-only mortgage, plus another £30k unsecured (i.e. more expensive) loan. You what?!?
Even the lower figure is thirteen and a half times income.
They've no security of income – all their income eggs are in one basket and that business could easily go under. They have significant other expenditure in their NZ property. If interest rates there go up (and they're higher than here) then that's going to get worse.
They may well want to return home after five years – there's absolutely no guarantee that prices won't have fallen by that point, leaving them with the choice of being stuck here or taking a big loss.
Where are the funds for the repayment vehicle for the interest-only mortgage?? At the end of the period, they'll need to find up to half a million quid from somewhere. That doesn't come cheap.
c) At least two mortgage and financial advisers who suggested the above in Saturday's Times.
No wonder UK (and London in particular) property prices are stupid if people are prepared to hand out this sort of money to people like this.
(Edited: it was 100k turnover not profit for the business, which makes it even worse!)