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Inflation Expectations – What To Do?

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If your savings are solely to buy a house, then that is the only inflation rate that matters. Food and fuel prices may be going up, but house prices are definitely on the way down right now. So, at the moment, you are in effect already getting a very high real rate of interest on those savings.

I'm hoping to be in a similar situation in the coming years, so think about such a scenario a lot. Assuming you're not living in the SE, then 150K in cash would put you in a wonderful position right now to do some real bargaining with sellers. I reckon you might even get something advertised at 200K for 150K all cash and no chain.

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rantandrave has posteed what I would have done.

You have a large amount of cash waiting to buy a house and the price of what you want to buy is currently falling. In my opinion, house prices will remain static at best for a few years now, so even a couple of percent interest on your money is keeping you ahead of the game.

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I'd just like to third what the others have said. I'm in the same boat and my view at present is that cash is the best place to be albeit with some risk. I can only see a downward pressure on house prices at the moment although this situation could change in the future. I'm betting my money on money.

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I’m at a crucial juncture in deciding what to do with my savings. I’m a prospective FTB who’s been sitting on substantial savings (for me - about 150k) for a few years. This is not

Yes, it is a frustrating situation when one cannot decide on one's future/investment based on what things should be based on various factors, but to be based on what thinks what the policy makers' thoughts are.

Techieman posted a 1.5X RPI bond (so better than NS&I pre tax):

http://www.housepricecrash.co.uk/newsblog/2010/10/blog-solving-hyperinflation-30685.php

The best investment is still to invest in yourself if you have the inclination (and oh..that is before uni fees goes up).

or you can go for ETF on Index linked gilts.

Edited by easybetman

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Agree with all the above. The only impact high cpi/rpi has is giving people less disposable income and increasing downwards pressure on house prices (and putting pressure on the boe to up base rates). Imo you're in a great situation-you don't even need to rush in to take advantage of low IRs.

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All of the above - plus, some of my strategy:

1) Keep all investments where I can rapidly liquidate them

2) Keep an eye on the local market for potential opportunities

3) Watch RPI vs wage inflation.

If the gap on 3) starts to close significantly, consider doing something about 2). I don't see it happening yet though.

I have no suggestions on investments. It sucks.

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I haven't done too bad from changing my online savings account every year (to get the best one-year introductory offers). Even at the lowest point, I've been earning 2.4% pa after tax. I know that's slightly under RPI, but as said earlier, I'm saving to buy a house so that's the inflation figure I watch. Sure, there are better returns out there, but I find these are risk free and I have access to the cash immediately and penalty free if anything happened.

Natwest are offering 2.89% (pre-tax) at the moment which is pretty good. Snapped that up now my Citibank (3%, orig 3.3%, before tax) has come to an end. Natwest is specially handy 'cos my current account is with them and I can move money around between accounts online in an instant. They even let me have the 2.89% even though I'm an existing customer (which is how it should be imo).

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Techieman posted a 1.5X RPI bond (so better than NS&I pre tax):

http://www.housepricecrash.co.uk/newsblog/2010/10/blog-solving-hyperinflation-30685.php

IIRC you can't draw your money out at will.

IMO, don't invest in gold or foreign currencies, or indeed anything that has the potential to go t1ts up, you've worked too hard for it.

As mentioned above, the cost of living may be going up but houses aren't, so keep it in GBP and keep it safe.

Edited by exiges

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I’m at a crucial juncture in deciding what to do with my savings. I’m a prospective FTB who’s been sitting on substantial savings (for me - about 150k) for a few years. This is not gambling money, but the result of a decade of thrift where I’ve chosen to sacrifice a lot versus my peers/friends to achieve this position and cannot afford to lose the money.

Although it hasn’t been possible to completely keep in line with [reported] inflation I think I’ve done ok. However my most recent NS&I Bond is set to mature and the alternatives are far below any sensible rate of return to maintain the value of my savings.

So I face a dilemma. I’m sitting here as a creditor wondering how others would perceive the situation. I appreciate I’m being manipulated by the central bank in precisely the manner they hope for, which angers me even more.

If inflation rises further I actually don’t think this is a positive for the lower end of the housing market, as mortgage rates will have to rise in part at least and the erosion of spending power will hit others like me. However, my savings would be hammered so my net position would be worse. Contrary to everything I believed at the start of this recession (i.e. great news re. some deflation) it seems the powers that be have set out clear precedents that continue to favour debtors:

Banks – bailed out

Profligate countries – bailed out

Debtors in general – policies favour their position

Discipline is not being exercised and I can see myself getting screwed in this game.

So what to do? I don’t want to ‘invest’ in bonds (top of the cycle), stocks (too much monetary manipulation makes it impossible to gauge true value), commodities (volatility), gold (Long term yes and for any future savings, but not for this cash) and most significantly this is my house money and not for betting.

I’m increasingly thinking about what someone would do in my position? Put the cash towards 2 deposits where the rental income covers the mortgages and sit it out for now? Just accept a slow (for now) erosion of capital? This makes me want to scream as I cannot believe I’m paying for an inflation-linked pension of civil servants yet they won’t offer me the same opportunity with my own money.

For the older members: the inflationary period of the 70s/early 80s – I understand the energy shocks to the economy, but how quickly did inflation change from a ‘concern’ to outright worry? I’m basically frightened of being too late and then finding myself chasing depreciating currency (which to be fair I think is already happening more than reported).

For what it’s worth, I’m generally a bear on house prices and believe in deflation IF market forces were allowed to take effect. But I realise now I’m in the minority and just don’t trust governments to not trash my future and engineer the complete opposite.

Any opinions gratefully received. Sorry for the long post.

Sensible post.

1) You shouldn't decide it now. Wait at least until Feb/March. We may have good nominal falls until then.

2) If we do, and if you think that in the next 10 years inflation and IR will go up, perhaps you could consider buying something small, with a 10 years fixed rate mortgage, with as little deposit as possible to get you a good rate. Probably 25%. And then you will have some savings left to profit from higher rates in the following 10 years.

But think about that after the winter of HP falls. :)

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This first poster is similar to me although I have less available but can settle in a cheap area.

This site seems to have a lot of people these days saying 'buy gold, it will be like zimbabwe soon'.

It is hard in my area for jobs but I am mostly self employed. Ie the dilema is if I spent the money on a house then it needed a new roof,

where would I get 10,000 from? As a FTB I dont know if that is covered in insurance.

My view was after the large fall announced a few weeks ago, was its ok.

I am not looking to make massive profits, after all that is surely what Bulls in the housing market over the last ten years were up to arent the gold bugs now guilty of similar boom mentality? I just want to get a small place outright then try to get a small pension.

Now with QE2, the hyperinflationists are out in force again. Which obviously is worrying.

So I am 34, what actually did happen to house prices in the large inflation environment in the 70s? If one was in a similar situation to now, ie enough money for a house,

did inflation run away so much that house prices went beyond savings with interest?

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(...)

what actually did happen to house prices in the large inflation environment in the 70s?

(...)

I think people that were on long term fixed rate got their debts almost erased by inflation.

People on trackers had to keep paying the full whack.

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One thing that either I misunderstand or others do is re. the 'only inflation that matters is house price inflation'. I'm not sure I agree with this. The way I look at it is that house prices need to be falling by at least as much as my net position (RPI - savings rate) to stay in the money. If house prices remain static I'm still losing money. Another issue is that if I'm not buying I'm renting, and rents are rising. So again this erodes my purchasing power. A third issue is the effect of inflation on a mortgage.

Well if you start factoring in the costs of renting v buying then you complicate things of course. This is why for many people, the idea of their house being a home and not an investment is a comfortable one. I tend to agree.

Of course, factoring in rent is only half the problem. You've got the cost of maintenance to juggle with too, and then you have to put a value on flexibilty or being settled...it all adds up to something that is very hard to put a monetary value on.

I think that the simple conclusion of "I have £150k and what I want to buy with it isn't going up in price" is a reasonable position to stick with for a couple of years.

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Thanks for all the replies.

One thing that either I misunderstand or others do is re. the 'only inflation that matters is house price inflation'. I'm not sure I agree with this. The way I look at it is that house prices need to be falling by at least as much as my net position (RPI - savings rate) to stay in the money. If house prices remain static I'm still losing money. Another issue is that if I'm not buying I'm renting, and rents are rising. So again this erodes my purchasing power. A third issue is the effect of inflation on a mortgage.

Investments - yes I'd like to stay in easy access just in case something great comes up

At the moment I feel I'll leave it until spring and reassess. To maybe explain my concerns better, feel I'm basically playing a game of optimisation/need to lock in a fixed rate while:

House price falls > (RPI-savings rate), and

RPI > Fixed mortgage rate

But I can see that scenario flipping around quite quickly, and when it does there could be hoardes of prospective BTLers willing to lose capital later for debt erosion gain now, skewing the market again. Find it quite sad this is what it comes down to. This stuff keeps me up at night.

chris - I've been listening to financial sense for years. Still undecided on the inflation/deflation debate as I actually think neither is a significant problem, except in so far as governments feel they need to counter one or the other.

Price inflation is just the visible aspect. It is actually the currency that is loosing power. Usually for being diluted by monetary expansion (printing) faster than GDP growth.

Re. timing, yes, long term fixed may go up before nominal prices come down. in this case I'll stay renting.

Re. protecting your deposit from inflation - a very difficult one. Sorry. Not sure.

I've been keeping mine spread in a few foreign currencies (saving accounts in UK banks). And I think in the medium term (1 to 3 years) I think the Euro may fall less than sterling or dollars, as the ECB has less freedom to print. Swiss Francs? Canadian Dollars? A little in each? Diversification.

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am about to put 1/3 of our savings into gold and silver - circa 18k - just fed up with continuing to have the piss taken out of our prudence.

i know it is a top bull market but the way the dollar is being printed and the general currency instability i cannot see the yellow stuff go anywhere but up over the next 2 years.

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I was in same position 12 months ago and ended up buying a place. House prices are overvalued and will/should go down however getting practically zero on savings and people who had over borrowed being bailed out I didn't know what was to happen.

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NS&I RPI-linked bonds roll on at a reasonable rate. At least mine have, and the on-line calculator appears to confirm.

I can second that ... had one roll literally a month ago. Rolled onto an RPI +1% and this is after they withdrew the bonds from offer on their website.

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My silver purchased in the last 12 months has increased in value.

I am approx 1/3 index linked.

The rest is in cash which I can access quickly earning approx 3-5% which may go to more metals, defensive shares or commodities, currencies or *cheap property.

HTH

Edited by 23rdian

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I’m at a crucial juncture in deciding what to do with my savings. I’m a prospective FTB who’s been sitting on substantial savings (for me - about 150k) for a few years. This is not gambling money, but the result of a decade of thrift where I’ve chosen to sacrifice a lot versus my peers/friends to achieve this position and cannot afford to lose the money.

{etc etc}

You talk a lot of sense here. Personally at this point I'm looking to buy somewhere at the end of next year. This is mostly a factor of personal circumstances (starting a family and wanting to be settled) but also because the rental market is becoming highly competitive and unfavourable. In general I back my earning prospects over the next 10 to 20 years so it's a pretty easy decison provided I can get what I want, which should be tight but do-able, possibly with a job change.

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You talk a lot of sense here. Personally at this point I'm looking to buy somewhere at the end of next year. This is mostly a factor of personal circumstances (starting a family and wanting to be settled) but also because the rental market is becoming highly competitive and unfavourable. In general I back my earning prospects over the next 10 to 20 years so it's a pretty easy decison provided I can get what I want, which should be tight but do-able, possibly with a job change.

Doable at 5% interest rate? (Current 10 years fixed, if you have 25% deposit)

Variable will get there too, 5%, or more, in a few years (1-3 years?).

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am about to put 1/3 of our savings into gold and silver - circa 18k - just fed up with continuing to have the piss taken out of our prudence.

i know it is a top bull market but the way the dollar is being printed and the general currency instability i cannot see the yellow stuff go anywhere but up over the next 2 years.

UK_House_Prices_in_Gold_LOG_GUESS.png

Average U.K. house price now below 200 troy ounces of gold and heading for 50.

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Doable at 5% interest rate? (Current 10 years fixed, if you have 25% deposit)

Variable will get there too, 5%, or more, in a few years (1-3 years?).

Yeah need to be down around 5% or better. Best I can hope for will be 85% LTV I think, but PO and HSBC have 2 or 3 year fixes around that level. Will see what's available in about 8 months time.

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I’m increasingly thinking about what someone would do in my position?

Nicely written post and I am in a very similar position. I made a list of reasons for myself why now is a sensible time to convert my savings into a small house with land. Some of those reasons are below:

- I have to ask permission to get a pet, paint a wall, or put some pictures up, that is humiliating => only worth doing whilst house was basically free (interest paid rent)

- Only 40% of my £ savings are inflation protected. (NS&I)

- Think fiscal crunch will force base rates low for many years => tracker is best

- Base rates are being forced low whilst inflation high -> arbitrage opportunity via NS&I versus a low base rate tracker

- Back in 2007, plots were £350k for 1/3 acre, I can now get double that land with a house on for less money than that

- Can buy mortgage free (nearly) but will keep savings in NS&I and mortgage base rate linked until this arbitrage opportunity ends

- Council tax savings cf renting of £600pcm = £15K over 25 years. Big extension does not increase council tax until house is sold. (Current rules)

- An interest only Mortgage is a quarter of the rent (although doing a repayment)

- A few sensibly priced properties are coming up due to forced selling

- Building materials costs are increasingly rapidly due to weakened £ - increases the house value measured in devalued £'s

- Less than 25 working years left for mortgage, getting close to 20 so running out of time

- One kid in school, another starts next year, need to get a secured address to stay in best local schools. (nothing decent to rent in the last 7 years)

- Big enough plot to grow food (veg/chickens/fruit) and fuel if necessary

- Priced £175K cheaper below another house sold 6 months ago but works would be £75K to be equivalent.

- If lose job, better off in the benefits system with a house. Can do a lot of work on the property myself if necessary. Out of work renters with savings are screwed

- Risk of economic meltdown wiping out £ savings

In general - I get the feeling that everything is about to go t*ts up and I want my family to be safe.

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If your savings are solely to buy a house, then that is the only inflation rate that matters. Food and fuel prices may be going up, but house prices are definitely on the way down right now. So, at the moment, you are in effect already getting a very high real rate of interest on those savings.

I'm hoping to be in a similar situation in the coming years, so think about such a scenario a lot. Assuming you're not living in the SE, then 150K in cash would put you in a wonderful position right now to do some real bargaining with sellers. I reckon you might even get something advertised at 200K for 150K all cash and no chain.

I agree, why not buy a house and live in it?

it will save on rent and you won't need to worry about your savings deflating in real terms.

Why are you delaying? is it just that you think prices may reduce over time, or because you need to be mobile for your job, or other reasons?

alternatively consult several internet forums for some unbiased, informed advice on how to invest £150k

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  • 141 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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