Maths are complicated for it. Obviously, rule of 72, would say even at 3% interest the loan would double in 24years.... But that's if you're not making payments. I don't want to get in the thick of it, but without doing maths, I'm sure at 9% inflation, that loan in real terms is shrinking. (Inflation won't stay this high for 20 years though). Any inflation helps though. Higher the inflation, the less sting any debt payments such as mortgage will hurt.
I've never like a house being thought of as an asset. How much its worth, how much is owed on it. It's been a long held belief of mine that if houses where first and foremost homes and possibly more importantly couldn't be removed from you at a whim it would be a nicer world to live in.
Yeah, if you're not fixed rate it will hurt. Inflation only helps if you're locked in a t a fixed rate.
It’s not so much the cost anyway, but the ratio of earnings to price. From 1950s up to 00s, was anywhere between 4-6 times average salary. since 01 it’s gradually climbed and now at around 8 times salary. so yes, interest rates may be lower now but the overall cost is huge, so bring those interest rates up to ‘norm’ added to the 8 times salary and because a total **** show. Especially given you aren’t given an interest rate for life, and everyone from the last 10 years (myself included) who have brought property and always paid around 2-4% interest suddenly now having to pay upwards of 6% when remortgaging is going to cause huge issues. Yea, in theory people should realise rates may climb and plan for it, but how do you plan for that when inflation has gone up, interest rates have gone up, but pay hasn’t kept up? I get the whole idea that if inflation is high you put interest rates high so people spend less. And I agree in principle, but it doesn’t work for mortgages as they are long term commitments that people plan for 20/30 years, and not a bit of a splurge on spending.
May have over exaggerated but you know what I meant. All you lot in your 60s that brought 4 bedhouses back in the 70s for pennies and now sitting in fortunes while rest of us paying 300k for a 2 bed house
I don’t get this? How is inflation going up helping exactly? That’s only accurate if pay is going up with inflation, which just isnt the case.
The only way to remortgage to bring repayments down is to try get a longer term and pay more in the long run. A 20 year mortgage redone over 30 years will drop the monthly repayment a bit. Interest rates are a blunt instrument but its literally one of the only levers these bank of England types have to pull back inflation Buying up bonds or stopping printing more money or revsluing the pound are fra kly massively more difficult.
Typically in periods of inflation, pay does go up, not always as fast as inflation, and usually with a lag. Governments around the world have often used "Quantitative Easing" (encouraging inflation) to lower people's debt burdens. Inflation, long term, shifts real money away from lenders towards lenders. It can take time for salaries to catch up, but they usually do.
Couple of points a ) i'm not in my 60's you cheeky little whippersnapper - thats next month b) think you have a very distorted idea of the housing stock most of us lived in back in the 70's c ) You also have a distorted view of house prices cos you live in the south which , and i know this comes as a shock , isn't representative of the UK
It's not that complicated 100k mortgage compounded over 20 years at 5% 100x1.05 and so on amd so forth. The value to the bank over time is more like 4 times the outlay. Over 20 years your first 10 are normally only paying interest and then you start seeing it go down
cousin of mine was obsessed with how much is house was going up in value and i'm like so are all the other houses so what difference does it make* *obviously if you live somewhere which ot performs the market it does .
It doesn't. High inflationary periods in history have largely been disastrous. After World War 1. This lead to great depression in usa and to rise of nazis in Germany. Hyper inflation. After world war 2 there was inflation to to remove of price controls amd shortages. Guess what? We are after covid and there's shortages. In the 1970s with oil crisis driving inflation. Look at 1980s stock market crashes. High inflation will drive political and economic issues in the future. Its not all rosy Outlook and wages might eventually rise but ordinary folk suffer and its very likely the stock markets tank here.
That's not taking into account the amount paid, 3% over 24 years would double the amount paid. (72 / interest) = # of years to double. But because I'm paying down what I owe each month, it's actually going to take more than 24 years to double. Also, I can use the same calculation to calculate what a $ will be worth. At 9% it means a $ halves in value after just 8 years. (9% means prices double every 8 years). But I'd need to calculate each year in between and how much inflation offsets interest paid, etc... to see at what % inflation I end up paying less than I borrowed.... And inflation obviously won't stay anything like it is now for 20 years.
Have to agree. A) it's not pennies. As I said a 5k mortgage in the 60s say was massive massive thing to pay back. B) yes there's a massive difference is standards. There's not too many leafy burbs with 4.bed detached houses in reality. C) yes there are areas there prices are different and then the rest of us. For example Scotland is very odd where you can have a tenement of a million pound House in the same city. But yeah, that that really. D) as the fool says it doesn't actually matter rwhat it's worth if it's a home to live in. The kids end up taking ot and selling or whatever. It cost whatever and someone struggled to buy it for 20 years. E) it's also clear its a horrendous market today where its just gone beyond the bounds of reality imo. So yeah young folk can feel bad about it but that doesn't make telling old people they had it easy are more of a fact cos it clear wasn't.
Think one big difference between today and my youth is that if you rent that eats so much of your income it is really really difficult to save to even scrape a deposit together.
Mortgages are paid monthly (or semi monthly), not annually and you pay a fraction of the interest in between each payment, so 5% on 100k wouldn't be 100,000 * 1.05, it would be a little less than that. Not worth the effort involved to calcuate...
Don't forget that there were huge economic booms following each of those recessions mentioned above. Short-term high (and too low) inflation causes recessions. The main long-term economic impact of inflation is shrinking the gap between the "Haves" and "Have-Nots", which, in general is good for the long term economy. Ideally, there would always be some inflation, although obviously, the high inflation we have now is painful and causing a lot of people financial distress. The late 80's and 90's were huge boom times for most of the global economy. Early Nazi-Germany was a huge economic renaissance for them (although, that was in part due to unsustainable spending from the government). We're probably heading for a painful recession right now, inflation is too-high to avoid it, but on the other side of the recession is very likely a 90's type economic boom if you can ride the bad economy out long enough.
