Inflation Question: Buy Now?

[Lord D'arcy Pew]

In a hyperinflation environment the humble 1st class stamp X 10,000.

It will always pay for a first class letter no matter the future price increase, and can be traded as if it were cash.

[Moo]

Unemployment rocketing, underemployment rocketing, factories sitting idle, commodities in another bubble. I just don't believe the inflation story.

Chuck in a likely change of government in less than a years time, going from governance on a 9 month timescale by bods with a propensity to spend to one with potentially a 20 year timescale by bods who're likely to be a lot more prudent, and I think you'll have even less trouble disbelieving the inflation story.

[Stu.]

Unemployment rocketing, underemployment rocketing, factories sitting idle, commodities in another bubble. I just don't believe the inflation story.

This is my problem too. Inflation or not?

Like it or not i think it is coming. The QE and artificially low BoE rates are currently skewing everything. We are beginning to see the first affects of it. Fuel price increases, which will then hit onto food prices, and that along with the devaluation of the £.

Only reason it doesnt appear in the statistic, correct me if im wrong house prices are not included within the RPI? It is in the CPI im sure.

If that were the case for the past 10 years then we would have had inflation at 10% not the 2% until recently.

Does anyone know when the next inflation figures are due? And Merv has to write a new letter to Ponzi?

Stu.

Edited July 6, 2009 by Stu.

[judas]

If I believe some form of hyper inflation is on the way (10-15%), say in the mid term (3-5 yrs tops), isn't it better to buy a place now on a 10 year fixed rate, at a mortgage I can comfortably afford, and allow inflation to erode the debt?

10-15% isn't hyperinflation.

[bomberbrown]

Manchester Building society are doing them at 5.47% with a 70% LTV. Although thats still a fairly massive whack of cash needed!

Stu

Where? I'm interested in the T&C's

http://www.themanchester.co.uk/mbsnew/mort...ent/default.asp

[judas]

Go and work out the repayments on a 25 year term £160k repayment mortgage at 5%, 10%, 15% and 20% interest rates. Now compare them to the takehome of someone on £40k (about £2,500). Quite simply, at 10% both BTL'ers and FTB'ers would completely cease to exist at that rate. No new money in. End of. At 20% it's total Armageddon. Yeah, I know I've not added in the pay rises, but given that they lag, they're not guaranteed, and all other living costs are rising anyway, they're basically pissing in the wind compared to the increase in repayments in the short term.

Why is this different to the 70s? Income multiples.

Do the same calculations, but change that 4x income £160k repayment mortgage for a £120k repayment mortgage and the difference is quite staggering.

In short, inflation is a great way of destroying debt.... but only if the amount of debt isn't far too high in the first place.

You're right.

You've not added in the pay rise and you should.

Rents would rise in line with inflation, albeit with a short lag.

[Tim Miller]

If I believe some form of hyper inflation is on the way (10-15%), say in the mid term (3-5 yrs tops), isn't it better to buy a place now on a 10 year fixed rate, at a mortgage I can comfortably afford, and allow inflation to erode the debt?

There is not going to be any inflation with house prices, there will be no spare money left to allow this! Utility bills, food, petrol, etc will take every penny you have. bankruptcy and unemployment will be the order. Properties will keep falling because even though you think 'That's cheap' you won't have the means to buy property, nor will 99% of the population.

We will enter a period of just financially surviving! We will have high interest rates just to add to your misery.

Here endeth the first lesson, now turn to page 51 in your hymn book..................

[Stu.]

Go to page 2 of the results under 15 year deals.

Table of Contents

Mortgage Pay Rates Fees

Early Repayment Charge Remortgage

Income Multipliers Cashback

Employment Status Conditions

CCJs & Arrears Max/Min Term

Acceptable Payment Methods Purchase Remortgages

Endowment 5.740% 5.740%

Part Investment 5.740% 5.740%

Pension 5.740% 5.740%

Interest Only 5.740% 5.740%

Individual Savings Account 5.740% 5.740%

Capital And Interest 5.740% 5.740%

Mortgage Pay Rates : Fixed rate

A fixed rate of 5.740% for a period of 15 years followed by MANCHESTER BUILDI's Standard Variable rate, currently 4.840% for the remaining term of the mortgage

Standard Variable Rate 4.840%

Early Repayment Charge :

* 3.00% of loan amount redeemed to be paid within 10 years

Remortgage :

Acceptable Reasons for Remortgage Loan to Value Limit Increment to Pay Rate

No Capital Raising 70% 0%

Home Improvements 70% 0%

Debt Consolidation 70% 0%

School Fees 70% 0%

Holidays/Cars 70% 0%

Other Property purchase 70% 0%

Business Purposes 70% 0%

Divorce Settlement 70% 0%

Unemcumbered 70% 0%

Applicant Type Restrictions : n/a

Cashback : None

Minimum Valuation : £125,000

Maximum Loan : £350,000

Minimum Loan : £50,000

Loan To Value Limits : 70% to max val.

Maximum Loan Term : 15 Years

Minimum Loan Term : 15 Years

The overall cost for comparison is: 7.7% APR

calculation method for APR assumes reversion to base rate.

Employment Status :

Employed

Minimum length of time in current position : 6 Month(s)

Minimum length of time in continuous service : 6 Month(s)

Self Employed

Loan to Value limit for self employed : 70%

Minimum no. of years accounts : 2 Years(s)

Income calculated as average of previous 2 Years net profits

Declining net profits will NOT be considered

Net profits do not have to show steady growth

Income Multipliers :

Enhanced income multipliers available.

Applicant 1

The 1st applicants income will be multiplied 4.25 times. The 1st applicant must be 21 or over and must earn more than £17,500 per annum.

Applicant 2

The 2nd applicants income will be multiplied 1.00 times. The 2nd applicant must be 21 or over.

Joint Application

For joint applications the combined incomes will be multiplied 3.25 times. The 1st applicant must earn more than £17,500 per annum.

Other Income :

Guaranteed : Add 100% to basic income before using multiplier.

Regular : Add 100% to basic income before using multiplier.

Irregular : Add 100% to basic income before using multiplier.

Other Jobs : not taken into consideration.

Investment : Add 100% to basic income before using multiplier.

Mortgage Subsidy : not taken into consideration.

DSS Payments : not taken into consideration.

Rent Allowance : Add 100% to basic income before using multiplier.

Attendance Allowance : Add 100% to basic income before using multiplier.

Large Town Allowance : not taken into consideration.

Maintenance Payments : not taken into consideration.

Non Contributory Pension : Add 100% to basic income before using multiplier.

Additional Duty Hours : not taken into consideration.

Car Allowance : Add 100% to basic income before using multiplier.

Monthly Outgoings :

Hire Purchase : annualised payments will be deducted from salary.

Personal Loans : annualised payments will be deducted from salary.

Overdraft : annualised payments will be deducted from salary.

Credit Store Cards : annualised payments will be deducted from salary.

Child Maintenance : annualised payments will be deducted from salary.

Child Education : annualised payments will be deducted from salary.

CCJs :

CCJs NOT acceptable

Arrears :

Arrears NOT acceptable

Valuation Fees :

Valuation up to Valuation Fee Then Add Per

£100000 £205.00 - -

£150000 £250.00 - -

£200000 £290.00 - -

£250000 £325.00 - -

£300000 £350.00 - -

£400000 £400.00 - -

£500000 £450.00 - -

£600000 £505.00 - -

£700000 £555.00 - -

£800000 £605.00 - -

£900000 £680.00 - -

£1000000 £780.00 - -

Up to a maximum of £250, refer to lender.

Arrangement Fee : flat fee of £995.00. Fee will be added to loan.

Booking Fee : not applicable;no fee

Higher Lending Charge :

Threshold n/a Rate% n/a Min Premium n/a

Insurance :

Insurance is NOT a condition when applying for this mortgage.

Requirements :

Last Date for application : n/a

Last Date for completion : n/a

Notes :

Up to 10% of the capital balance outstanding at the start of the calendar year can be repaid within that calendar year without the early repayment charge being applied.

Minimum period of property ownership 6 months before remortgage permitted.

Newly Built / Converted flats and houses excluded. Residential houses must have been completed at least 36 months ago, and flats/apartments must have been completed at least 84 months ago.

Ex-local Authority Flats excluded.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP

[bomberbrown]

<snip>

I don't get this bit:

The overall cost for comparison is: 7.7% APR

calculation method for APR assumes reversion to base rate.

[the flying pig]

probably posted already?

[grizzly bear]

In a hyperinflation environment the humble 1st class stamp X 10,000.

It will always pay for a first class letter no matter the future price increase, and can be traded as if it were cash.

i'd need a pretty big safe to buy 1 million of them and might be hard to sell them?

[twatmangle]

Inflation only erodes the debt if wages go up with inflation!

Correct, but inflation does erode savings regardless.

[Godley]

I keep saying this, are you sitting on a large deposit? Do you require a mortgage? If the answer is yes to both of these questions then now is a good a time as any to buy a house.

Not one mention in this thread around what happens when inflation picks up, and it will. We already have inflation and we have not even got going yet.

Question for you all. For every 0.5% increase in interest rates what will you need to discount off the house you will eventually buy in order to break even over a 10 year period?

Money is cheap today, I am buying and I am borrowing as much as I possibly can and fixing the interest rate accordingly. Using the rest of my money (which was originally for the house) to put into shares and land.

Being sensible with money as I have been all my life is clearly not the way to go, you have to binge yourself sick on debt. Get with the script guys before you miss out. It's sickening isn't it?

[Godley]

Inflation only erodes the debt if wages go up with inflation!

Debased currency will see to it that wages will be able to increase.

[bullsh1t]

In a hyperinflation environment the humble 1st class stamp X 10,000.

It will always pay for a first class letter no matter the future price increase, and can be traded as if it were cash.

Genius!!

[Dorkins]

If you are pretty sure RPI inflation is going to go over 7%, then you can borrow up to £30k at a fixed 8% from any personal loan provider, stick it all in National Savings RPI-linked bonds (yield RPI+1%), and see what happens. At the moment RPI is running at about 4-5% annualised, so you are currently getting 5-6% yield and only have to pay 2-3% of £30k pa to make up the difference. So you are currently losing maybe £1k pa on the deal while you wait for inflation to climb (and could potentially lose more than that if it falls), and the minute it goes past 7% you are squids in. This has the advantage of avoiding real house price falls.

Just a thought.

Edited July 6, 2009 by bearly legal

[Guest Steve Cook]

That's exactly right.

You need higher income, or the debt burden is unchanged for the borrower.

It only "erodes" in relation to rising income.

In fact, you will be worse off than a low inflation situation, if you have no income rise,

because lenders will put up their interest rates to try to recover what they lost to inflation.

This is the problem some stupid home buyers are making. They think their debts will

somehow magically erode away. The reality is, the home value will not keep pace with

inflation when rates are rising, unless rents rise as fast/or faster than interest rates.

If you gave a quiz on the impact of inflation and hyperinflation on home prices to estate

agents, 90-95% of them would fail it. Mainly because they believe their own flawed soundbites.

Yep.

Prices rise in any asset class because of either :

an increase in the amount of money chasing that asset

and/or

a decrease in the supply of the asset relative to the money chasing it

Our money supply has been expanded. However, none of it will b e heading the way of Joe Public any time soon because we are a terrible risk for the lenders due to rising unemployment. So, there will be little extra money, if any, chasing the domestic housing market.

Meanwhile, all of this new money will still be looking for a new home to go to. This will inevitably be the commodity markets. In particular the essential commodity markets as they are the only asset class left in town that people will always be forced to buy from above a minimum level. Thus, we are going to get the worst of both worlds in that the average citizen will have access to less money in an environment of rising prices of essential goods and services.

Edited July 6, 2009 by Steve Cook

[Property Owning Democracy]

Yep.

Prices rise in any asset class because of either :

an increase in the amount of money chasing that asset

and/or

a decrease in the supply of the asset relative to the money chasing it

Our money supply has been expanded. However, none of it will b e heading the way of Joe Public any time soon because we are a terrible risk for the lenders due to rising unemployment. So, there will be little extra money, if any, chasing the domestic housing market.

Meanwhile, all of this new money will still be looking for a new home to go to. This will inevitably be the commodity markets. In particular the essential commodity markets as they are the only asset class left in town that people will always be forced to buy from above a minimum level. Thus, we are going to get the worst of both worlds in that the average citizen will have access to less money in an environment of rising prices of essential goods and services.

Really? In which case buy some commodities and make your fortune. Leverage yourself up.

But actually you have no idea where that money will go. Nodody does. When the Fed cut

before the other central banks a lot of money went into oil - which then collapsed. There

certainly are people buying up distressed sales of property commercial and residential & if

There money is out there it's aslikely to find its way to property as it is to commodities in a

Global recession that diesn't really look like ending

[the_duke_of_hazzard]

10-20% can be considered hyper

By people who don't know the proper definition, perhaps.

[Neverland]

Yep.

Prices rise in any asset class because of either :

an increase in the amount of money chasing that asset

and/or

a decrease in the supply of the asset relative to the money chasing it

Our money supply has been expanded. However, none of it will b e heading the way of Joe Public any time soon because we are a terrible risk for the lenders due to rising unemployment. So, there will be little extra money, if any, chasing the domestic housing market.

Meanwhile, all of this new money will still be looking for a new home to go to. This will inevitably be the commodity markets. In particular the essential commodity markets as they are the only asset class left in town that people will always be forced to buy from above a minimum level. Thus, we are going to get the worst of both worlds in that the average citizen will have access to less money in an environment of rising prices of essential goods and services.

Steve

Please dont shoot me, but aren't the current government pressurising the banks to push the free money they have been given into the pockets of Joe Public?

HMG do afterall have the banks in their pockets to a greater (eg RBS, Lloyds) or lesser degree

I'm basically a house price bear myself, but I have a nagging doubt about the effect of a mild 5-10% decade of inflation to massage away a large level of private debt in the UK

I believe this is what happened in the 70s (I wasnt reading the financial pages then), but I wondered what affordability was like then in terms of income multiples and interest rates?