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 Post subject: Inflation watch
PostPosted: Mon Oct 21, 2013 4:31 pm 
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Holiday Home Owner

Joined: Nov 21, 2012
Posts: 323
There has recently been some debate about whether QE is inflationary, so this thread could be a good place for posting stories reporting price rises (and falls!). I am sure I will find at least one per day from one of the money printing hotspots around the world.

Npower to raise energy prices by 10.4%

Quote:
Energy firm Npower has become the third major supplier to announce price rises, with a dual-fuel bill to go up 10.4%.

The price rise will take effect on 1 December, and is the highest increase announced by any supplier so far.

SSE will increase prices by 8.2% from 15 November and British Gas said prices would go up by 9.2% on 23 November.

The Npower increase includes an electricity price rise of 9.3% and a gas price rise of 11.1%. The move will affect 3.1 million customers.

More here http://www.bbc.co.uk/news/business-24607242

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 Post subject: Re: Inflation watch
PostPosted: Tue Oct 22, 2013 5:45 am 
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FT Front Page (paywall). Bundesbank calling apartments as 20% overvalued.

Bundesbank warns of property bubble
Report fuels concern on impact of loose ECB monetary policy

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 Post subject: Re: Inflation watch
PostPosted: Tue Oct 22, 2013 9:36 am 
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London House Prices Surge by an ‘Unsustainable’ 10%
Quote:
Values in the U.K. capital surged 10.2 percent, or 50,484 pounds ($82,000) from the previous month, to an average 544,232 pounds, the property-website operator said in a report today. Estate agents in inner London reported a “buying frenzy” reducing the available stock to nearly nothing, it said.

Bloomberg

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 Post subject: Re: Inflation watch
PostPosted: Tue Oct 22, 2013 9:51 am 
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China Major Cities Home Prices Jump, Fanning Bubble Concerns
Quote:
New home prices in September rose 20 percent in the southern business hubs of Shenzhen and Guangzhou, 17 percent in Shanghai and 16 percent in Beijing from a year earlier as prices climbed in 69 of the 70 cities the government tracks.

Bloomberg

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 Post subject: Re: Inflation watch
PostPosted: Tue Oct 22, 2013 9:57 am 
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Could we see a sudden spike in interest rates on foot of some of this?

Even a small jump in interest rates could be catastrophic for people with large mortgages on trackers.

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 Post subject: Re: Inflation watch
PostPosted: Tue Oct 22, 2013 10:58 am 
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Joined: May 17, 2012
Posts: 366
FirstBass wrote:
Could we see a sudden spike in interest rates on foot of some of this?

Even a small jump in interest rates could be catastrophic for people with large mortgages on trackers.



No, they will not raise rates until a) it is too late b) they have filled their pockets and left office.


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 Post subject: Re: Inflation watch
PostPosted: Tue Oct 22, 2013 12:23 pm 
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khards wrote:
FirstBass wrote:
Could we see a sudden spike in interest rates on foot of some of this?

Even a small jump in interest rates could be catastrophic for people with large mortgages on trackers.



No, they will not raise rates until a) it is too late b) they have filled their pockets and left office.


Tracker mortgages at low interests are allowing people front load their Capital Payments even though they are making smaller payments. This will give them some breathing space when rates eventually go up.

In the example below even though you are paying €600 less per month, in the first year you pay more than €3000 extra in capital

e.g €300k mortgage / 30 years

Capital remaining after 5 years
5% interest rate - €275,023.59
1.5% interest rate - €258,169.61

Capital remaining after 10 years
5% interest rate - €243,432.50
1.5% interest rate - €213,795.16

Capital remaining after 15 years
5% interest rate - €202,889.81
1.5% interest rate - €165,978.00

thanks to http://www.drcalculator.com/mortgage/

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 Post subject: Re: Inflation watch
PostPosted: Tue Oct 22, 2013 12:29 pm 
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Joined: Oct 29, 2007
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Location: Multiverse
jake76 wrote:
Tracker mortgages at low interests are allowing people front load their Capital Payments even though they are making smaller payments. This will give them some breathing space when rates eventually go up.


Absolutely true, but I wonder how many have actually used their low interest trackers to front load ?

If this bust has shown anything, it's that people don't sufficiently plan for the future.


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 Post subject: Re: Inflation watch
PostPosted: Tue Oct 22, 2013 12:36 pm 
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mr_anderson wrote:
jake76 wrote:
Tracker mortgages at low interests are allowing people front load their Capital Payments even though they are making smaller payments. This will give them some breathing space when rates eventually go up.


Absolutely true, but I wonder how many have actually used their low interest trackers to front load ?

If this bust has shown anything, it's that people don't sufficiently plan for the future.


They actually are doing it just by maintaining their normal payments

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 Post subject: Re: Inflation watch
PostPosted: Tue Oct 22, 2013 12:38 pm 
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Joined: Sep 13, 2007
Posts: 31337
Location: Tullamore
jake76 wrote:
mr_anderson wrote:
jake76 wrote:
Tracker mortgages at low interests are allowing people front load their Capital Payments even though they are making smaller payments. This will give them some breathing space when rates eventually go up.


Absolutely true, but I wonder how many have actually used their low interest trackers to front load ?

If this bust has shown anything, it's that people don't sufficiently plan for the future.


They actually are doing it just by maintaining their normal payments

Um, but they don't maintain their normal payments. They say "yipee, my mortgage payment has gone down, I'm off to get a car loan"...

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 Post subject: Re: Inflation watch
PostPosted: Tue Oct 22, 2013 12:47 pm 
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Joined: Dec 18, 2011
Posts: 783
The point is that by keeping the mortgage payments the bank dictate, they are effectively front-loading their mortgage even though that payment amount has come down (from E1500 to E1000, give or take, in the example given)

They can also go off and take our a car loan, of course (though few enough are doing that, it seems)


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 Post subject: Re: Inflation watch
PostPosted: Tue Oct 22, 2013 12:50 pm 
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Location: Multiverse
yoganmahew wrote:
jake76 wrote:
They actually are doing it just by maintaining their normal payments

Um, but they don't maintain their normal payments. They say "yipee, my mortgage payment has gone down, I'm off to get a car loan"...



Bingo !


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 Post subject: Re: Inflation watch
PostPosted: Tue Oct 22, 2013 12:59 pm 
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mr_anderson wrote:
yoganmahew wrote:
jake76 wrote:
They actually are doing it just by maintaining their normal payments

Um, but they don't maintain their normal payments. They say "yipee, my mortgage payment has gone down, I'm off to get a car loan"...



Bingo !


I got a free car with my mortgage XD

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 Post subject: Re: Inflation watch
PostPosted: Tue Oct 22, 2013 1:01 pm 
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Joined: Sep 13, 2007
Posts: 31337
Location: Tullamore
CdeB wrote:
The point is that by keeping the mortgage payments the bank dictate, they are effectively front-loading their mortgage even though that payment amount has come down (from E1500 to E1000, give or take, in the example given)

They can also go off and take our a car loan, of course (though few enough are doing that, it seems)

If your interest rate comes down, your mortgage payment comes down automatically. You have to tell the bank that you want to keep the same level of payments. It's a variable rate mortgage (tracked off the ECB rate), not a fixed payment.

Holy shit, I thought we were past the "I don't understand a tracker mortgage..."

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 Post subject: Re: Inflation watch
PostPosted: Tue Oct 22, 2013 1:07 pm 
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Real Estate Developer

Joined: Dec 18, 2011
Posts: 783
yoganmahew wrote:
If your interest rate comes down, your mortgage payment comes down automatically. You have to tell the bank that you want to keep the same level of payments. It's a variable rate mortgage (tracked off the ECB rate), not a fixed payment.

I know that. I have a tracker.

What jake76 is saying is that - even with these reduced payments - you're still paying off capital earlier than under the original agreement. He's even given a link and produced numbers to back this up.

The point is that under the original agreement, the earlier payments attract a higher percentage of interest (because the interest rate is higher). As you pay it off, the interest rate drops quicker than under the tracker (where the interest rate is low). So over the same 30-year period, a tracker actually eats into the capital quicker.

Which means tracker mortgages are being front-loaded.

Edit - you can try this out in Excel if you wish. Take a 360-month mortgage for E300k. One is @ 1½% , one is @ 5%. Repayments are E1,035.36 and E1,610.47 respectively. Even though the tracker is paying E580 a month less, by the end of month 12, it'll have paid off E3,553 more capital than the 5% loan. At the peak, after month 209, the tracker will have paid off E37,826 more capital than the 5% loan. This is the crossover point where the higher payments have finally reduced the loan to the extent that the 5% loan will now pay off more capital than the tracker. It then quickly catches up so that both mortgages are paid off at the same time.


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