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is that true? did property prices ever rise in line with wage inflation? i'm struggling to find that period of time in the last 40 years. supply and demand determines price, and demand is influenced by supply of mortgages and lending criteria. now, i would say that supply has a bad underlying trend, aided by low interest rates and fear of inflation, and that demand has a positive one, both from owner occupiers and investment funds. don't agree with you at all

...houses and property rose with inflation when wages matched thereabouts inflation ...this is not the case in this burst ..and property will continue to decline in value .... :rolleyes:

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Yeah, but his sig is better than yours.

Whose sig ?!

....because when you need tomatoes to eat and they take up more of your income each month then there is nothing left to actually pay the mortgage?

Nah - just because the only inflation that can help your debt - as stated already by many is wage inflation.

So CPI/RPI stats or whatever - that may contain the price of tomatoes - really have little impact on the ability of someone to pay off debt. And - as many others have said - when they increase this could actually make it more difficult to pay off debt. As other costs increase.

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....because when you need tomatoes to eat and they take up more of your income each month then there is nothing left to actually pay the mortgage?

But if he has a tomato farm (for example) then when the price goes up, his income will go up with it. No?

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Whose sig ?!

Nah - just because the only inflation that can help your debt - as stated already by many is wage inflation.

So CPI/RPI stats or whatever - that may contain the price of tomatoes - really have little impact on the ability of someone to pay off debt. And - as many others have said - when they increase this could actually make it more difficult to pay off debt. As other costs increase.

ah, now if you had said widescreen tv's and ipods then I would have got that :lol:

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But if he has a tomato farm (for example) then when the price goes up, his income will go up with it. No?

Ah - you have a point. I may have to add an asterix to the next time I post that. And declare this is not entirely accurate for tomato farmers. :lol:

ah, now if you had said widescreen tv's and ipods then I would have got that :lol:

I just like the tomato angle. Old school. :D

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is that true? did property prices ever rise in line with wage inflation? i'm struggling to find that period of time in the last 40 years. supply and demand determines price, and demand is influenced by supply of mortgages and lending criteria. now, i would say that supply has a bad underlying trend, aided by low interest rates and fear of inflation, and that demand has a positive one, both from owner occupiers and investment funds. don't agree with you at all

...in the '70's I had at least two salary increases of 30% + due to inflation ...where were you....?... :rolleyes:

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Perhaps you ought to have explored this issue prior to purchase. :P

Inflation per say does not help you. The part that matters is how your wages change in relation to prices. CPI/RPI reduce the purchasing power of currency, and hence your debt, but that also applies to the currency you earn so unless your wage rises beat the rate of decline of purchasing power, your debt will rise in real terms. Simples.

It's "per se" not "per say". From the Latin meaning from, through or of itself.

Sorry, can't help myself. ;)

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in the 70s i was in school learning the difference between these versions of "per se". you are totally wrong in stating that property prices rise in line with wage inflation, now, in the 70s or in the intervening period.

...in the '70's I had at least two salary increases of 30% + due to inflation ...where were you....?... :rolleyes:

Edited by fallingbuzzard
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Forget inflation.

What you need is increases in pay - this is what erodes the debt.

Price inflation doesn't affect the amount you owe. I believe that currently average wages are falling - this doesn't help the paying back of debt.

In fact the inflationary environment coupled with falling wages, which we are now seeing, is your worst enemy.

As inflation picks up in food, fuel, clothing etc., and wages stagnate or fall, people have less disposable income left to spend on servicing a mortgage, rent, saving for a deposit or putting in outrageous bids on houses.

Result? Paradoxically, in an inflationary environment where inflation stays ahead of wage growth, property prices fall in real and NOMINAL terms, especially if they are at the upper limit of a previous unsustainable boom . This had been evidenced in all the great inflations of the 20th/21st century I'm afraid.

It goes without saying that negative equity for recent buyers is a very real risk in this situation. And if interest rates finally go up to where they should be to combat inflation, you are probably toast too.

Sorry to be the bearer of bad news OP, but you should have known better being an HPCer.

Edited by General Congreve
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Not really inflationary though, is it? Marginally by previous recent history where inflation has been crazy, say 70s to 90s. And most of it now is tax increases not wages, and potentially just one-offs. Interest rates, base and real, won't rise till we see the effects of wage inflation, so we're are still at least two years from there. I think the poster made the right decision.

In fact the inflationary environment coupled with falling wages, which we are now seeing, is your worst enemy.

As inflation picks up in food, fuel, clothing etc., and wages stagnate or fall, people have less disposable income left to spend on servicing a mortgage, rent, saving for a deposit or putting in outrageous bids on houses.

Result? Paradoxically, in an inflationary environment where inflation stays ahead of wage growth, property prices fall in real and NOMINAL terms, especially if they are at the upper limit of a previous unsustainable boom . This had been evidenced in all the great inflations of the 20th/21st century I'm afraid.

It goes without saying that negative equity for recent buyers is a very real risk in this situation. And if interest rates finally go up to where they should be to combat inflation, you are probably toast too.

Sorry to be the bearer of bad news OP, but you should have known better being an HPCer.

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in the 70s i was in school learning the difference between these versions of "per se". you are totally wrong in stating that property prices rise in line with wage inflation, now, in the 70s or in the intervening period.

...try this and check the wage inflation , RPI inflation and House Prices in the 70's on Google...it's all there... :rolleyes:

http://www.ft.com/cms/s/0/4d254aea-2abd-11dd-b40b-000077b07658.html#axzz1LWVYZaIv

Please respect FT.com's ts&cs and copyright policy which allow you to: share links; copy content for personal use; & redistribute limited extracts. Email [email protected] to buy additional rights or use this link to reference the article - http://www.ft.com/cms/s/0/4d254aea-2abd-11dd-b40b-000077b07658.html#ixzz1LWWDYzoR

The main difference between the situation in the 1970s and now is today's absence of wage inflation, which explains why absolute inflation rates are a little more moderate. I guess this is probably because of some combination of deregulated labour markets and globalisation. But the lack of wage-push inflation is not necessarily good news. Falling real wages mean falling disposable income and tighter credit conditions mean less borrowing for consumption.
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Not really inflationary though, is it? Marginally by previous recent history where inflation has been crazy, say 70s to 90s. And most of it now is tax increases not wages, and potentially just one-offs. Interest rates, base and real, won't rise till we see the effects of wage inflation, so we're are still at least two years from there. I think the poster made the right decision.

1. Firstly you're not comparing apples with apples: Where are the inflation-busting wage increases now?

2. Last summer it cost me 14 pence per mile to drive, 10 months later I'm paying 21 pence per mile in the same vehicle.

3. I note Innocent Juices haven't put their prices up, but those bottles of orange juice sure do feel 10% lighter these days.

Not to mention that banks aren't lending into a falling market unless the borrower has a huge deposit so they take the hit of nequity.

Most importantly you need to look at the real interest rates. Inflation may be running at 7% (in reality), with a base rate at 0.5% the real rate of interest is -6.5%, this is the important inflationary figure.

In the 70's, 80's and 90's inflation got much higher, but so were interest rates. I don't have the figures to hand, but I'm sure for much of the time the real interest rate was above -6.5%.

Edited by General Congreve
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So you were loaded in the 70's, the mortgage was a pittance and you had cash to spare?

...man I was skint in the 70's ..and skint today....but I didn't overspend or over consume either..also spent 50% of my time working overseas... :rolleyes:

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Sorry to be the bearer of bad news OP, but you should have known better being an HPCer.

i read this board for a year or so (still do, very entertaining).

i dont think i've made a bad decision overall

got 10% off asking price (mortgage of £107k).

nice place, garden, loft, North West England. no work needed. terraced house. nice area

currently work in defence industry with decent pay rises

i took the line of quite a few chaps on this board who have said that perhaps waiting years for a potential 5-10% off isnt worth it. i wanted a place of my own after doing the renting game for 12 months.

every situation is different but im glad ive not been stuck renting and "saving" as a couple of hundred quid a month is barely noticeable.

i know house prices take the p1ss but im happy ive been making mortgage payments rather than landlord payments over these last 16 months.

and im fairly confident my house will go up in value - has quite a few unique selling points.

glad i read this board or couldve been in a far sh1tter situation

anyway, thanks for the help.

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But if he has a tomato farm (for example) then when the price goes up, his income will go up with it. No?

that depends.. why has he put the price up?

Is it because the super markets are feeling generous, or because the cost of fertiliser and petrol has risen?

His margin may have shrunk..

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i read this board for a year or so (still do, very entertaining).

i dont think i've made a bad decision overall

got 10% off asking price (mortgage of £107k).

nice place, garden, loft, North West England. no work needed. terraced house. nice area

currently work in defence industry with decent pay rises

i took the line of quite a few chaps on this board who have said that perhaps waiting years for a potential 5-10% off isnt worth it. i wanted a place of my own after doing the renting game for 12 months.

every situation is different but im glad ive not been stuck renting and "saving" as a couple of hundred quid a month is barely noticeable.

i know house prices take the p1ss but im happy ive been making mortgage payments rather than landlord payments over these last 16 months.

and im fairly confident my house will go up in value - has quite a few unique selling points.

glad i read this board or couldve been in a far sh1tter situation

anyway, thanks for the help.

The simple question you have to ask yourself is with the inflation we currently have are you finding it easier or harder to pay your debts and living costs?

As inflation is in everything except wages your answer is likely to be no which shows that inflation is bad for you.

So now rather than paying a (highly likely) local landlord who would spend that money into the local economy you are paying rent to the bank that will give it to someone (likely to be) living in London - nothing like wealth stripping the rest of the country to keep the capital strong.

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CPI/RPI inflation = income erosion (not debt erosion)

wage inflation may allow for debt erosion but it will need to outpace the income erosion due to CPI/RPI inflation.

If you earn £100 but RPI/CPI come in at 25% and you get a 10% pay rise the wage inflation has just cancelled out some of the income erosion created by the RPI/CPI inflation, but isn't sufficient to create debt erosion - despite the 10% wage inflation it has become more difficult/expensive to service your mortgage debt.

Edited by Alfie Moon
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Its cheaper for me to buy using my squirel savings than rent. In my market prices have fallen about 20%. I am able to choose which house whereas mates who bought in 2006 are in negative equity. They cant sell but they have great mortgage rates! Problem is they are stuck on run 1!

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and im fairly confident my house will go up in value - has quite a few unique selling points.

Don't be confident about that.

My house has no USPs (unless you consider been worn down by two kids in the last ten years as one), yet when I went to sell it last year I got three good offers. There are plenty of nicer houses in my street up for sale this year at similar prices with USPs (good kitchens/bathrooms/conservatories/loft rooms etc,) but none are shifting.

You only get what someone is prepared to pay when you sell it. That's what the last seller got off you.

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Don't be confident about that.

My house has no USPs (unless you consider been worn down by two kids in the last ten years as one), yet when I went to sell it last year I got three good offers. There are plenty of nicer houses in my street up for sale this year at similar prices with USPs (good kitchens/bathrooms/conservatories/loft rooms etc,) but none are shifting.

You only get what someone is prepared to pay able to borrow when you sell it. That's what the last seller got off you.

:rolleyes:

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