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Question For Bubb

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Bubb,

You seem to know about these things so can you tell me if my rudimentary economics holds up -

If oil continues to rise, inflation will begin to increase.

As inflation increases, debt gets eroded quicker (for those who own a proprerty, for example).

But house purchases decline as interest rates increase to "cover" inflation.

If this holds true, surely being a property owner is more secure than not being one?

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Genral inflation is happeing, but wages are not inflating to keep up with the cost of living, so people have been resorting to taking on more debts to keep up thier consumption levels. They had confidence in rising house prices and a long trens of very bullish economic sentiment and employment.

House price, economic sentiment and employment prospects have all turned and have much further to fall before turning back up....

All the time there is little (no effective) infrastructure to force wage inflation.

CPI which under represents genral inflation is what most wages are negotiated on so wages have not kept up with the cost of living and do not look to do in the future /current conditions.

No it is not better to be a home owner. Cos wages are not and will not be rising to inflate the bedts away...

If it starts to happen on a scale required to make it significant against the oceans of debts then we can reconsider this view.

Sp1

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Maybe I'm thick, but if Prices fall and Rates increase (on anything - not just house prices) surely there is no real reduction in costs to the purchaser?

Over simplified example -

I can buy a £200k house and pay £1100 per month or buy the same house for £150k and pay £1100 per month - wheres the gain?

My grasp of economics is limited...so type slowly :)

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Maybe I'm thick, but if Prices fall and Rates increase (on anything - not just house prices) surely there is no real reduction in costs to the purchaser?

Over simplified example -

I can buy a £200k house and pay £1100 per month or buy the same house for £150k and pay £1100 per month - wheres the gain?

My grasp of economics is limited...so type slowly :)

You are correct in your last statement.

The gain is as follows: If you decide to pay off an extra £1000 per month the 150K house will be paid off over 4 years ahead of the £200k house. Also the interest payment will become much smaller for the 150K house once some of the house is paid off.

And, whatever happens to interest rates, you will still have paid the same amount for your house. ie interest rates fluctuate but the amount you paid for your house does not.

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Maybe I'm thick, but if Prices fall and Rates increase (on anything - not just house prices) surely there is no real reduction in costs to the purchaser?

Over simplified example -

I can buy a £200k house and pay £1100 per month or buy the same house for £150k and pay £1100 per month - wheres the gain?

My grasp of economics is limited...so type slowly :)

For the most part (17-22 years assuming you buy in say 3-8 years time) of your 25 year mortgage the two scenario share the same interest rates. Don't forget that when you have taken out £200k you wont be paying £1100 when the interest rates increases in the same time frame you talk of making the purchase for £150k.

I agree with you on inflation eroding the mortgage debt, your overall total cost of the debt is obviously lower, so you will be in a better overall financial position to appreciate a general economic improvement sooner than someone with another 50K+interest of debt around their neck. On the £150k investment you pay a lower overall % towards dead interest payments from your earnings (which you can theoretically put into other investments).

http://www.fsa.gov.uk/consumer/04_CREDIT_D...calculator.html

This is my understanding of what you ask, please better my understanding if this is not the case.

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  • 302 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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