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They Are Letting Inflation Wipe Out The Debt

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it is what was to be expected really.

the forces at work are simply letting the real inflation wipe out peoples borrowings, so a few years down the line all is well and no need for a crash.

the only thing that does not inflate in price is the inflation figure itself.

by the end of the year interest rates will be much lower than now, maybe 1.5 pct lower.

im affraid that they are simply not going to let a house crash happen, the govenment, the banks, the country . there are too many people invloved and too much at stake. and a manipulation of the fugires is what is happening.

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An interesting theory but it will require wage inflation to match the real inflation figure for earning multiples to revert to historic norms.

As for interest rates I would be very surprised to see them drop by 1.5%.

Edited by Red Baron

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it is what was to be expected really.

the forces at work are simply letting the real inflation wipe out peoples borrowings, so a few years down the line all is well and no need for a crash.

the only thing that does not inflate in price is the inflation figure itself.

by the end of the year interest rates will be much lower than now, maybe 1.5 pct lower.

im affraid that they are simply not going to let a house crash happen, the govenment, the banks, the country . there are too many people invloved and too much at stake. and a manipulation of the fugires is what is happening.

That is ok by me, provided wage inflation happens also. The sensible view has to be that if REAL prices come down, then we have got what we wanted - affordable housing. The key ratio is that of average earnings to average house price. If prices remain static, but wages rise then I will be happy.

There are some downsides - borrowers will be getting a free lunch at the expense of savers. Its not naural justice, but nobody said life was fair.

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it is what was to be expected really.

the forces at work are simply letting the real inflation wipe out peoples borrowings, so a few years down the line all is well and no need for a crash.

the only thing that does not inflate in price is the inflation figure itself.

by the end of the year interest rates will be much lower than now, maybe 1.5 pct lower.

im affraid that they are simply not going to let a house crash happen, the govenment, the banks, the country . there are too many people invloved and too much at stake. and a manipulation of the fugires is what is happening.

Inflation is irrelevant... as someone else mentionned - only wage inflation erodes debt.

Wage inflation just isn't going to happen at the same time as unemployment rising, globalisation and offshoring of jobs (unless you are one of the lucky few).

No wage inflation = no erosion of debt

No wage inflation + goods/commodities/fuel inflation = No erosion of debt + lower disposable income.

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Echo everybody else debt doesn't get eroded by inflation, it is eroded by wage inflation.

Inflation in everyday costs without commensurate wage inflation actually makes the debt wose as debt can only be repaid with net income after tax and general expenditure.

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Inflation is irrelevant... as someone else mentionned - only wage inflation erodes debt.

Wage inflation just isn't going to happen at the same time as unemployment rising, globalisation and offshoring of jobs (unless you are one of the lucky few).

No wage inflation = no erosion of debt

No wage inflation + goods/commodities/fuel inflation = No erosion of debt + lower disposable income.

Just thought I would add something to your excellent analysis to spell it out.

No wage inflation + goods/commodities/fuel inflation = No erosion of debt + lower disposable income = SKINT, MEWING MAXED OUT ON CREDIT - FORCED SELLER :lol:

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That is ok by me, provided wage inflation happens also. The sensible view has to be that if REAL prices come down, then we have got what we wanted - affordable housing. The key ratio is that of average earnings to average house price. If prices remain static, but wages rise then I will be happy.

There are some downsides - borrowers will be getting a free lunch at the expense of savers. Its not naural justice, but nobody said life was fair.

Well, I've thought for some time now that the Federal Reserve will hyper-inflate their way out of this unprecedented debt mountain to avoid deflation. But for this to happen wages have to rise, which they are patently not and will not, considering the dire unemployment figures.

Inflation is rearing its head on certain things, most notably energy but wage settlements are no way keeping pace with this. This may mean the 'figures' look good but people are inevitably going to spend less, as is happening.

As for the VIs not letting a housing crash happen - Call me a blind believer in Capitalism, but the market mechanism is far more powerful than governments, banks, property folks. So the market will ALWAYS find its own level no matter any manipulations, sooner or later.

To those who believe "it's different this time"; don't you believe it. The characteristics of a bubble such as greed and fear are in-built within human beings and will always be there. Tulipmania, South Sea, Tech etc etc are different examples of the same human impulses.

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Well IMO the BTL debt is eroded by rent inflation, not wage inflation. But obviously wage inflation covers a larger portion of the market.

That is true, but if people are stuggling with the rising cost fo day to day items - food, petrol, bills, etc etc if at the end of the month they have run out of money then what can they do - save on all the above as much as they can and then take a closer look at their other major outgoing - rent.

I suggest that without sufficient wage inflation then the pressure is just as much on rents as it is on the levels of debt.

Edited by OnlyMe

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Well IMO the BTL debt is eroded by rent inflation

But rents are determined by market affordability. If people can't afford to buy houses they won't be able to afford higher rents either.

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That is ok by me, provided wage inflation happens also. The sensible view has to be that if REAL prices come down, then we have got what we wanted - affordable housing. The key ratio is that of average earnings to average house price. If prices remain static, but wages rise then I will be happy.

There are some downsides - borrowers will be getting a free lunch at the expense of savers. Its not naural justice, but nobody said life was fair.

If wage inflation happens and that includes the Public Sector, that brings us back to the Pensions question.

The final salary schemes, iirc, inflation linked, will see liabilities soar.

Would that not mean higher taxes, more wage inflation, an upward spiral, inflation feeding inflation?

Those on fixed incomes then suffer, so Governments, after votes, have to increase benefits.

The list is endless.

The genie of inflation does not like going back in the bottle.

Maybe the intent from above is to engineer "controlled yet hidden" higher rates of inflation.

Yet all talk is of controlling wage inflation.

Something has got to give because once enough people start thinking that under a particular Government they have got poorer that Government is on the way out.

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But rents are determined by market affordability. If people can't afford to buy houses they won't be able to afford higher rents either.

They may be able to, because mortgage income multiples are capped rather conservatively, while landlords will let you pay as much rent as you can actually afford. So you can spend 60% of your income on rent, but not on a mortgage.

(Yes, 5X salary is a conservative mortgage income ratio with base rates at 4.5% and with no realistic prospect of them going above 5.5% in the foreseeable future.)

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Well IMO the BTL debt is eroded by rent inflation, not wage inflation. But obviously wage inflation covers a larger portion of the market.

Rent inflation is fundamentally tied to wage inflation. Unless of course you’re happy to hold a vacant lot.

IF YOU MAKE IT LESS AFFORDABLE YOUR MARKET WILL SHRINK.

Once again I am training feckin monkeys

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They may be able to, because mortgage income multiples are capped rather conservatively, while landlords will let you pay as much rent as you can actually afford. So you can spend 60% of your income on rent, but not on a mortgage.

(Yes, 5X salary is a conservative mortgage income ratio with base rates at 4.5% and with no realistic prospect of them going above 5.5% in the foreseeable future.)

depends how far you can see

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Guest Charlie The Tramp

Yes, 5X salary is a conservative mortgage income ratio with base rates at 4.5% and with no realistic prospect of them going above 5.5% in the foreseeable future.)

I like that zorn. Is that also the prediction of your boss? <_<

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They may be able to, because mortgage income multiples are capped rather conservatively, while landlords will let you pay as much rent as you can actually afford. So you can spend 60% of your income on rent, but not on a mortgage.

(Yes, 5X salary is a conservative mortgage income ratio with base rates at 4.5% and with no realistic prospect of them going above 5.5% in the foreseeable future.)

Really? I think that is well wide of the mark.

No matter what people think they can afford or what a landlord thinks that their customers can afford the bottom line is this - when the money runs out the persons themselves will have to judge where they cut their cloth to fit in with their circumstances. Exploding debt levels suggest than many have done this by pyramid borrowing - either to afford a mortgage or indeed their current outgoing rent levels and all other expenses.

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Well IMO the BTL debt is eroded by rent inflation, not wage inflation. But obviously wage inflation covers a larger portion of the market.

And what makes rent inflation possible, if not wage inflation?

They may be able to, because mortgage income multiples are capped rather conservatively, while landlords will let you pay as much rent as you can actually afford. So you can spend 60% of your income on rent, but not on a mortgage.

(Yes, 5X salary is a conservative mortgage income ratio with base rates at 4.5% and with no realistic prospect of them going above 5.5% in the foreseeable future.)

I don't think anyone can "afford" to spend 60% of their income on rent. They may do it, but what of savings? What of provision for the future? What of pensions? What of having families? If anyone is paying 60% of their income in rent, I would strongly suggest to them that they are a slave. I would no tolerate that, even if it meant I had to move back to my parents house or leave the country.

Paying 60% of income to line some lazy landlord's pockets? Come on! Get a grip!

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....

I don't think anyone can "afford" to spend 60% of their income on rent. They may do it, but what of savings? What of provision for the future? What of pensions? What of having families? .

I agree. This whole affordabilty concept destroys the chances of saving money. What if all industries catch on to this way of thinking? You'll be squeezed to the last penny.

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Well it's nice to see you're all now talking about my favourite subject, rent rises..... :)

In an attempt to answer all of your points, as I've said many a time before, rents have fallen in real terms since the BTL market got underway. That leads me to believe that because people are now spending less of their wages on rent, there is plenty of scope for increases without the need for wag inflation to match those increases.

What would trigger that type of increase I hear you ask. Well I don't see vast rent increases coming at the moment, because the threat of higher rates has subsided for now. But if & when the threat returns, obviously costs have to be matched or exceeded by sales. So put the LL under pressure & up go your rents.

And if you think you can argue with that, go ahead, but I warn you that I've heard it all before. So go on, suprise me with some new & valid point that I haven't heard before.

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Time to raise the rents

People can afford what they can afford or indeed want to pay for a service. Price it high enough or have cost pressures high enough elsewhere then they cannot/will not pay it - the financial state of the landlord is not part of the equation this equation, regardless of how dire it becomes.

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And what makes rent inflation possible, if not wage inflation?

I don't think anyone can "afford" to spend 60% of their income on rent. They may do it, but what of savings? What of provision for the future? What of pensions? What of having families? If anyone is paying 60% of their income in rent, I would strongly suggest to them that they are a slave. I would no tolerate that, even if it meant I had to move back to my parents house or leave the country.

Paying 60% of income to line some lazy landlord's pockets? Come on! Get a grip!

A 3 bed property today would cost £700pm round here which would be well over 60% of income for your typical office/factory worker.

I bet there's LOADS of people paying 60% of income on rent.

Wasn't there a report to say that a large percentage of workers had NO SAVINGS at all? Presumably they piss what's left over on SKY TV, X boxes, mobile phones, fags, junk food, booze and trips to the bookies...

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Well it's nice to see you're all now talking about my favourite subject, rent rises..... :)

In an attempt to answer all of your points, as I've said many a time before, rents have fallen in real terms since the BTL market got underway. That leads me to believe that because people are now spending less of their wages on rent, there is plenty of scope for increases without the need for wag inflation to match those increases.

What would trigger that type of increase I hear you ask. Well I don't see vast rent increases coming at the moment, because the threat of higher rates has subsided for now. But if & when the threat returns, obviously costs have to be matched or exceeded by sales. So put the LL under pressure & up go your rents.

And if you think you can argue with that, go ahead, but I warn you that I've heard it all before. So go on, suprise me with some new & valid point that I haven't heard before.

I would guess that the bulk of people renting are young couples/singles and the bulk of properties to rent are 1/2 bed flats. Put the rent up too much and they will simply move back home to their parents. I am beggining to this in ever-increasing numbers already ...

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  • 301 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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