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CrashedOutAndBurned

Inflation Tax: Born Five Years Earlier You Have A Life...

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Just a stark calculation loosely based on a friend:

Bought working class terraced house in 1999 for 80k with scraped from nothing 5k deposit and would pay a mortgage around 500 quid, although enjoyed much lower than this post-911.

Those houses were already over 220k in 2004/5 so that's around 1335PCM on a generous fixed-rate intro deal.

So if someone wanted the same nothing-special backstreets acomodation today they pay an inflation tax of over £800PCM!

Doesn't matter if you're a priced out young couple in low-paying jobs or a s*****y young professional in a cushy job - you still have to pay the 800PCM inflation tax to buy the same kind of house. It's bad news whoever you are.

If the government cuts or puts up income tax by a penny or two it's front page news, sparks massive debate, an election-deciding issue.

No one cares about the tax that is inflation (real inflation, not the Chinese Price Index), the brutal theft of the people's real world purchasing power.

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Just a stark calculation loosely based on a friend:

Bought working class terraced house in 1999 for 80k with scraped from nothing 5k deposit and would pay a mortgage around 500 quid, although enjoyed much lower than this post-911.

Those houses were already over 220k in 2004/5 so that's around 1335PCM on a generous fixed-rate intro deal.

So if someone wanted the same nothing-special backstreets acomodation today they pay an inflation tax of over £800PCM!

Doesn't matter if you're a priced out young couple in low-paying jobs or a s*****y young professional in a cushy job - you still have to pay the 800PCM inflation tax to buy the same kind of house. It's bad news whoever you are.

If the government cuts or puts up income tax by a penny or two it's front page news, sparks massive debate, an election-deciding issue.

No one cares about the tax that is inflation (real inflation, not the Chinese Price Index), the brutal theft of the people's real world purchasing power.

Not exactly a 'tax' though, is it?

The extra money isn't going to the government; it went to the person you bought the house off. The mortgage company gave it to them and now you're paying them back with interest.

Prices go up and prices go down. If you buy when prices are high it costs you more.

Isn't that how it's always worked?

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Just a stark calculation loosely based on a friend:

Bought working class terraced house in 1999 for 80k with scraped from nothing 5k deposit and would pay a mortgage around 500 quid, although enjoyed much lower than this post-911.

Those houses were already over 220k in 2004/5 so that's around 1335PCM on a generous fixed-rate intro deal.

And in 2010 or 2011 my guess is they'll sell (with difficulty) for about £160k. So the people who bought at £80k in 1999 will regard it as modest reward for over ten year's inflation, the people who bought in 2005 or 2006 will be struggling, and if they bought to let they'll be facing a very serious problem indeed.

Blessed will be the generation born in the early 1990's who will be set fair to get on the property ladder in their early 20's at a relative snip...assuming of course they've got a job that pays more than poverty wages, they can afford the far steeper mortgages that will prevail then, and they can find a bank willing to lend!

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Just a stark calculation loosely based on a friend:

Bought working class terraced house in 1999 for 80k with scraped from nothing 5k deposit and would pay a mortgage around 500 quid, although enjoyed much lower than this post-911.

Those houses were already over 220k in 2004/5 so that's around 1335PCM on a generous fixed-rate intro deal.

So if someone wanted the same nothing-special backstreets acomodation today they pay an inflation tax of over £800PCM!

Doesn't matter if you're a priced out young couple in low-paying jobs or a s*****y young professional in a cushy job - you still have to pay the 800PCM inflation tax to buy the same kind of house. It's bad news whoever you are.

If the government cuts or puts up income tax by a penny or two it's front page news, sparks massive debate, an election-deciding issue.

No one cares about the tax that is inflation (real inflation, not the Chinese Price Index), the brutal theft of the people's real world purchasing power.

The world has changed: general inflation was traditionally the means by which the young looted the savings of the old (the young protected themselves through wage inflation, while the old saw their savings eroded and their pensions falling behind).

The difference now is that we have seen asset price inflation as opposed to general inflation. Those who were in a position (and who chose) to get on the carousel early on have benefited by comparison with others, and there has been little wage inflation to compensate.

But as is often said on this forum, while house prices are so unaffordable it makes a lot more sense to rent -- meaning that this HPI-tax is voluntary and thus more of a charitable donation than a tax ;) The fly in the renter's ointment is having no security of tenure, of course.

(typo)

Edited by huw

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not to mention 10 years ago students left with about 6k debt (in today’s money), now it is 20k +

And we pay more tax today than 10 years ago!

And we didn’t have to put up with shite reality TV shows.

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This remind me of a true story.

This working class white van man cut up this guy in his Audi A3 i think it was. The Audi guy rightfully beeped his horn and waved his fist. They stopped at the the traffic lights in front of me and i was about two cars behind them. The White van man got out of his car, walked up to the Audi and punched the yuppie in his face through his open window.

Who was right or wrong made no difference.

It made me laugh a lot. When revolution comes the money in your bank will not be worth shit.

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Blessed will be the generation born in the early 1990's who will be set fair to get on the property ladder in their early 20's at a relative snip...assuming of course they've got a job that pays more than poverty wages, they can afford the far steeper mortgages that will prevail then, and they can find a bank willing to lend!

Errr.....not quite.

My 18 yr old was born in 1989. He is just off to Uni in a few weeks.

He has had a part-time minimum wage saturday job which pays for his nights out, Wii games and booze.

He wouldn't know what price houses were if his life depended on it. Where the economy has been the last 10 years, what is happending today in the debt markets or the stock market. Neither would most of his friends.

What he WILL find out the hard way, is that in 3 years or so, he will owe £20-30k in student loans and debt. Assuming he is lucky enough to get a job, he will then be straight onto the renting/housing cost ladder we all are so familiar with today.

If the global economy does got t*ts up he will lift his head up and see that houses are FALLING in value. That the economy is f*cked up, and that his parents generation have lost their jobs, gone bankrupt, lost money on their BTL's etc etc etc. When he is mature enough to understand these things, the last thing on his mind will be getting into debt or buying a house. I suspect he will do what most 20-30 somethings are now doing , which is rent and put off having kids as long as possible. Possibly into his mid-late thirties and even later.

I see no reason at all for his current generation to repeat this cycle of "getting onto the non-existent hosuing ladder" as the boomers have been encouraged to do. They generally came from an era of job security, post war austerity, no hedge funds or house price specualtors etc. His ipod generation may not wish to buy property EVER.

Who then will the boomer BTLers sell to to finance their retirement? More property specualtors/funds/bond companies?

If this goes the way we all suspect it may do, then I honestly cannot see who is going to buy up these houses in the future. Forget there being too high a demand, surely there is going to be next to zero demand and huge over-supply.

Perhaps we will end up with a more European (German especially) model, with a move towards a much bigger rental market owned by professional long-term landlords, and a much smaller pool of owner-occupied housing with much less gearing, less speculation and so on.

I for one, think that would be a very good model for the UK and I hope that it is one which ultimately comes to pass. I personally have been much happier in rented accomodation, where the landlord does the maintenance, and I reap the benefits. So long as there is a plentiful supply of good quality rented housing I see no reason at all for owning. Especially given the wild swings in interest rates, probably long-term capital depreciation and rising risks from global warming/flooding etc.

In fact, I think pretty much the ONLY reason to want to own a house is the prospect of long-term capital gains. If you took that out of the equation, as it likely to happen, why else would you buy?

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Not exactly a 'tax' though, is it?

It is effectively a dishonest tax.

If the government creates money to fund public spending, prices will go up and working people will be the ones paying the difference.

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In fact, I think pretty much the ONLY reason to want to own a house is the prospect of long-term capital gains. If you took that out of the equation, as it likely to happen, why else would you buy?

I agree, would people be so keen to buy at todays high prices, taking on large amounts of debt, to gamble on their future earnings, future interest rates all on IO, if they knew prices would only stagnate for many years to come, I doubt it. There are still far to many that think prices will go up & up forever, making them richer & richer, never to regret their bargain property purchase.

At 3x1st & 1x2nd persons gross income, I would agree that would be a beneficial buy.

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