Not all houses fall in value precipitously. If you wan't to aspire to a very desirable area then I think this image tells a good story. And don't come back to me with this in poncy craphole London. This gets mirrored in the nicer parts of Harrogate, Leeds, Bristol etc.
Anyway, the person with the deposit will be stumping up for a 25 year (large) mortgage after the inflation has happende, while those with property will be a lot closer to being mortgage free, having had their debt inflated away.
I live there and although not as strong as neighbouring areas (rural York, Leeds and Bradford) there have been are an ever increasing amounts of drops - one house has dropped £100k, in a nice area of HG.
As others have mentioned the abscence of wage inflation defeats your point.
To really let inflation do the job of eroding such big debts (i.e. a large mortgage) inflation would have to increase much more - with the MSM picking up on inflation (through stories of fuel, heating price hikes etc) do you really think the 'masses' would be able to stomach such jumps in prices when their wages and disposible income are already struggling to keep pace at the moment?
London, due to its international profile of buyers, will always be inherently different to your examples above. From my own experience of working in Leeds there ain't the well paid jobs in the region to sustain these prices, let alone the available credit to support purchases of cheaper property in these areas.
These areas are perfect 'creme brulee' examples of a few people with money and a lot of people playing catch up using previously cheap credit. Even at the top end a couple of weeks ago in Harrogate all of the £million properties for sale - non were STC.