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Inflation Threat

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Once again channel 4 touch stories the BBC sweeps under the carpet! They've just gone a massive piece on high inflation and how it's well above target and could even reach 4% soon!

Michael heseltine said that we have a possible inflation problem looming then they went onto discuss it in more detail.

All those on svrs well be starting to panic!

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Once again channel 4 touch stories the BBC sweeps under the carpet! They've just gone a massive piece on high inflation and how it's well above target and could even reach 4% soon!

Michael heseltine said that we have a possible inflation problem looming then they went onto discuss it in more detail.

All those on svrs well be starting to panic!

Terrorist attack on CH4 news HQ tomorrow?

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Once again channel 4 touch stories the BBC sweeps under the carpet! They've just gone a massive piece on high inflation and how it's well above target and could even reach 4% soon!

Michael heseltine said that we have a possible inflation problem looming then they went onto discuss it in more detail.

All those on svrs well be starting to panic!

I panicked early and bought a house last month for very little net debt using an STR fund, keeping a large part in NS&I RPI-linked. My earlier deflationary views anticipated rapid credit destruction and responsible financial leadership but when I finally realised that money printing and irresponsibility were the chosen (only?) policies, I gave up. No nominal HPC now, just a real terms one but even this will not be fast enough to compensate for rapidly devaluing savings.

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I panicked early and bought a house last month for very little net debt using an STR fund, keeping a large part in NS&I RPI-linked. My earlier deflationary views anticipated rapid credit destruction and responsible financial leadership but when I finally realised that money printing and irresponsibility were the chosen (only?) policies, I gave up. No nominal HPC now, just a real terms one but even this will not be fast enough to compensate for rapidly devaluing savings.

I disagree. Even Spain is getting near 3% inflation now, when logic dictates she should be well into the depths of deflation. So where's it all coming from? It has to be Chindia, oil and global food prices. Not QE. Wages haven't gone up, consumables are getting more expensive so people have less money left over. Add in tighter lending restrictions and nominal house prices should go down, although your RPI-linked savings might still do well.

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No nominal HPC now, just a real terms one but even this will not be fast enough to compensate for rapidly devaluing savings.

So what is happening NOW then?

Looks like nominal falls have been occuring to me over the last 1/4 at least. So you are telling people that something that IS happening right now won't happen? Odd.

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I panicked early and bought a house last month for very little net debt using an STR fund, keeping a large part in NS&I RPI-linked. My earlier deflationary views anticipated rapid credit destruction and responsible financial leadership but when I finally realised that money printing and irresponsibility were the chosen (only?) policies, I gave up. No nominal HPC now, just a real terms one but even this will not be fast enough to compensate for rapidly devaluing savings.

This is my take also. We are in uncertain, unchartered waters and the VIs have so much to lose if there is an obvious drop in house prices and that includes our beloved government. Money is the wrapping paper on our homes/assets. One in the hand is worth two in the bushes.

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I disagree. Even Spain is getting near 3% inflation now, when logic dictates she should be well into the depths of deflation. So where's it all coming from? It has to be Chindia, oil and global food prices. Not QE. Wages haven't gone up, consumables are getting more expensive so people have less money left over. Add in tighter lending restrictions and nominal house prices should go down, although your RPI-linked savings might still do well.

Other countries are getting inflation due to increasing demand for oil/food as you say but the UK will get it worse due to our QE. The entire government budget last year was effectively printed.

UK Wages are still going up at 2-3%, base rates are still 0.5%. Lending restrictions are tight yet net mortgage lending is still positive.

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So what is happening NOW then?

Looks like nominal falls have been occuring to me over the last 1/4 at least. So you are telling people that something that IS happening right now won't happen? Odd.

I agree that there have been nominal falls over the qtr, though not much of a drop last month or over the last year, the real-terms drops are far more significant. I would suggest that sterling STR funds intended to buy a house is looking particularly risky when inflation is ~5% and nominal house price falls are small at best. To justify STR funds now, the interest rate achieved on the fund needs to be keeping up with inflation. This was possible with NS&I but not any more.

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I agree that there have been nominal falls over the qtr, though not much of a drop last month or over the last year, the real-terms drops are far more significant. I would suggest that sterling STR funds intended to buy a house is looking particularly risky when inflation is ~5% and nominal house price falls are small at best. To justify STR funds now, the interest rate achieved on the fund needs to be keeping up with inflation. This was possible with NS&I but not any more.

Personally, I'd rather lose a percent or two a year to inflation than risk losing thirty or forty percent (capital loss), over the next few years.

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This is my take also. We are in uncertain, unchartered waters and the VIs have so much to lose if there is an obvious drop in house prices and that includes our beloved government. Money is the wrapping paper on our homes/assets. One in the hand is worth two in the bushes.

What other savings I have left are just going to be spend on insulation and doing up an outbuilding to rent, the returns on that are way better than an STR cash fund. I have oil-based heating and the price has doubled in the last year, now that's what I call inflation.

After that, the only cash/savings I intend to hold is just a float for day to day expenditure.

P.S. You can insulate a loft yourself for around £100 using the npower £3 a roll deal, this can be used by renters. The payback on that could be measured in months rather than years. I guess you can also take it with if you move!

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I panicked early and bought a house last month for very little net debt using an STR fund, keeping a large part in NS&I RPI-linked. My earlier deflationary views anticipated rapid credit destruction and responsible financial leadership but when I finally realised that money printing and irresponsibility were the chosen (only?) policies, I gave up. No nominal HPC now, just a real terms one but even this will not be fast enough to compensate for rapidly devaluing savings.

It's the classic 'low order consumer goods vs high order capital goods' situation. The gap must close and if the low order stuff rises that means the higher order stuff doesn't need to fall by as much as it would otherwise have to. But the gap is so crazy that inflation simply can't rise fast enough to close the gap and support house prices. Especially since it will take wage inflation to actually support prices, and salaries will be stubbornly held down by globalisation. There will be an element of price support as rising inflation and low rates make tangible assets such as property look more attractive.

All this inflation will do is to lessen the nominal fall in prices vs what allowing deflation would have done - but a substantial nominal fall there will still be. We are talking tens of thousands of pounds on a typical house.

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UK Wages are still going up at 2-3%, base rates are still 0.5%. Lending restrictions are tight yet net mortgage lending is still positive.

Full-time wages may be going up at 2% (last year!) but if you factor in those who are now working part-time the average wage increase falls to around 0%.

Sorry no link but this was discussed on here last year.

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All this inflation will do is to lessen the nominal fall in prices vs what allowing deflation would have done - but a substantial nominal fall there will still be. We are talking tens of thousands of pounds on a typical house.

+1

Inflation won't just stop there and HPI will eventually rear it's ugly head after the falls fuelling the feel good factor for the masses. The government of the day will proudly proclaim to have saved our day and we can gorge ourselves once more on MEWd cash to pay £5 loaves of bread and £3litre fuel.

How do I get hold of this loft insulation. I'm with Eon ??

Edited by tomposh101

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Once again channel 4 touch stories the BBC sweeps under the carpet! They've just gone a massive piece on high inflation and how it's well above target and could even reach 4% soon!

Michael heseltine said that we have a possible inflation problem looming then they went onto discuss it in more detail.

All those on svrs well be starting to panic!

4%!!!!!!!!! That's getting up to the post-war average.. the horror!

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I agree that there have been nominal falls over the qtr, though not much of a drop last month or over the last year, the real-terms drops are far more significant. I would suggest that sterling STR funds intended to buy a house is looking particularly risky when inflation is ~5% and nominal house price falls are small at best. To justify STR funds now, the interest rate achieved on the fund needs to be keeping up with inflation. This was possible with NS&I but not any more.

Why does it?

If it is an STR fund all it needs to justify it, is to keep up with house prices.

If the intention of the fund is to buy a house what does it matter if anything else is more expensive?

You say there were nominal falls over the quarter and people got more than the 0.5% base rate on their STR fund so they are quids in with it.

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What other savings I have left are just going to be spend on insulation and doing up an outbuilding to rent, the returns on that are way better than an STR cash fund. I have oil-based heating and the price has doubled in the last year, now that's what I call inflation.

After that, the only cash/savings I intend to hold is just a float for day to day expenditure.

P.S. You can insulate a loft yourself for around £100 using the npower £3 a roll deal, this can be used by renters. The payback on that could be measured in months rather than years. I guess you can also take it with if you move!

Its not bad thinking. The opportunity cost in terms of interest lost on STR is peanuts. Also you have made yourself uber competitive, with no mortgage you won't need a lot to live on.

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Personally, I'd rather lose a percent or two a year to inflation than risk losing thirty or forty percent (capital loss), over the next few years.

Depends on the number of "next few years".

If inflation loss is 5% per year, and it takes 5 years for house prices to drop to their real-terms low then I would expect paying rent in the meantime doesnt work out well. The only way to win out in the situation is if you have a means to keep the real value of your savings intact.

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I disagree. Even Spain is getting near 3% inflation now, when logic dictates she should be well into the depths of deflation. So where's it all coming from? It has to be Chindia, oil and global food prices. Not QE. Wages haven't gone up, consumables are getting more expensive so people have less money left over. Add in tighter lending restrictions and nominal house prices should go down, although your RPI-linked savings might still do well.

It is a globalised economy. Global money printing = global inflation.

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Why does it?

Unless you can live with parents/friends for free, the rent is the problem.

If it is an STR fund all it needs to justify it, is to keep up with house prices.

If the intention of the fund is to buy a house what does it matter if anything else is more expensive?

The key numbers for me are:

- annual rental cost is around 4% (varies a lot)

- net savings rate is around 2%

- inflation is around 5%

- mortgage rate is around 2.2% (mine is anyway)

- nominal house price changes ~0% (assume -5% if you like)

So real savings rate is around -3% and mortgage is cheaper than rent by around 2%. That gives mortgage payers a 5% head start over an STR.

House prices would have to be dropping at 5% nominally to make it just about worth keeping an STR fund in cash form. (missing lots of things out in these calcs but you get the point).

I can then get 10%+ return on insulation by home owning rather then renting. My oil heating bills on my last rental were heading for £2K per year.

If base rates stay low (big IF) whilst inflation stays at 5% then STR funds are at severe risk from inflation, even in the event of house price drops on the order of 5% pa.

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Depends on the number of "next few years".

If inflation loss is 5% per year, and it takes 5 years for house prices to drop to their real-terms low then I would expect paying rent in the meantime doesnt work out well. The only way to win out in the situation is if you have a means to keep the real value of your savings intact.

Inflation maybe about 5% per year, but I get about 4% per year on my savings, so that's a net loss to inflation of about 1%, peanuts.

As far as rent is concerned. I receive more in interest, on the amount I'd have to draw out of the bank to buy the house I'm renting, than I pay in rent ;).

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I panicked early and bought a house last month for very little net debt using an STR fund, keeping a large part in NS&I RPI-linked. My earlier deflationary views anticipated rapid credit destruction and responsible financial leadership but when I finally realised that money printing and irresponsibility were the chosen (only?) policies, I gave up. No nominal HPC now, just a real terms one but even this will not be fast enough to compensate for rapidly devaluing savings.

Correct - and the serious inflation hasn't evennstarted yet.

I wouldn't put that much faith in govt. index-linked bonds - the unmentionable(s) will perform much better

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Inflation maybe about 5% per year, but I get about 4% per year on my savings, so that's a net loss to inflation of about 1%, peanuts.

You're dead wrong!

I take it that you don't like numbers and that you hated maths at school?

Google 'compounding'

Take the euro - eurozone inflation has never got out of control - on average less than 2% per year. Numpty Keynesians even argue that the ECB has a deflationary bias!

However, if you look at the ECBs own CPI index the euro has lost over half of its internal purchasing power - those annual 2% increases have a devistating effect because they - drum roll

COMPOUND

over time.

This is how pension companies rob 1% in annual fees doesn't sound much - but you need to take compounding into account.

Get wise, don't be a victim

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Unless you can live with parents/friends for free, the rent is the problem.

The key numbers for me are:

- annual rental cost is around 4% (varies a lot)

- net savings rate is around 2%

- inflation is around 5%

- mortgage rate is around 2.2% (mine is anyway)

- nominal house price changes ~0% (assume -5% if you like)

So real savings rate is around -3% and mortgage is cheaper than rent by around 2%. That gives mortgage payers a 5% head start over an STR.

House prices would have to be dropping at 5% nominally to make it just about worth keeping an STR fund in cash form. (missing lots of things out in these calcs but you get the point).

I can then get 10%+ return on insulation by home owning rather then renting. My oil heating bills on my last rental were heading for £2K per year.

If base rates stay low (big IF) whilst inflation stays at 5% then STR funds are at severe risk from inflation, even in the event of house price drops on the order of 5% pa.

So you agree now that your original statement that an STR fund must keep up with inflation was wrong because you are now bringing in other factors such as rent?

A 10% return on a small cost such as insulation seems to be scraping the barrel. How much did it cost?

- annual rental cost is around 4% (varies a lot)

On what I would expect to spend on a house mine is 2.8%

- net savings rate is around 2%

On that same amount mine is 3.04% monthly

- inflation is around 5%

So what? I still don't see that has any relevance to something that the STR fund won't be spent on.

- mortgage rate is around 2.2% (mine is anyway)

That would be a good rate for a lifetime fix

- nominal house price changes ~0% (assume -5% if you like)

A house we can see from our window dropped 7% last month

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You're dead wrong!

I take it that you don't like numbers and that you hated maths at school?

Google 'compounding'

Take the euro - eurozone inflation has never got out of control - on average less than 2% per year. Numpty Keynesians even argue that the ECB has a deflationary bias!

However, if you look at the ECBs own CPI index the euro has lost over half of its internal purchasing power - those annual 2% increases have a devistating effect because they - drum roll

COMPOUND

over time.

This is how pension companies rob 1% in annual fees doesn't sound much - but you need to take compounding into account.

Get wise, don't be a victim

Thanks for your polite post, I'd better buy a house then and lose 30% or 40% on it :rolleyes:.

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  • 309 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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