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Is Debt Less Bad In An Inflationary Environment?

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I tried hard to follow a discussion about apples and lemons in another thread but got muddled by the strange fruit metaphor

The argument went something like: debt is bad, but in an inflationary environment, debt may be less bad. So why not just buy a house with a big mortgage, interest only, fixed rate long term? Don't pay off capital but invest cautiously in a spread of other assets instead.

Assuming you believe high inflation is ahead (the gamble) is this in fact a logical course of action?

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I tried hard to follow a discussion about apples and lemons in another thread but got muddled by the strange fruit metaphor

The argument went something like: debt is bad, but in an inflationary environment, debt may be less bad. So why not just buy a house with a big mortgage, interest only, fixed rate long term? Don't pay off capital but invest cautiously in a spread of other assets instead.

Assuming you believe high inflation is ahead (the gamble) is this in fact a logical course of action?

Possibly. Fixed rate debt is great in an inflationary environment (for the borrower).

So long as you still *have* a job, then servicing the debt gets easier and easier. It's that first bit that gets a bit tricky when inflation really takes off.

Edited by pharm

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Possibly. Fixed rate debt is great in an inflationary environment (for the borrower).

So long as you still *have* a job, then servicing the debt gets easier and easier. It's that first bit that gets a bit tricky when inflation really takes off.

to even have fixed rate debt, you need savers to take a chance.

so a borrower who gains through inflation will cause counter losses to the investors.

inflation, whichever way you look at it, transfers money from savers to borrowers. Only interest rates can reverse this.

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  • 284 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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