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    Inflation

    How would it affect the following

    a pensioner with state and private pension: State pension would change in line w/ inflation so no affect right?

    a houseowner with a mortgage

    and someone who buys a lot of technological goods
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    (Original post by MIZZ)
    Inflation

    How would it affect the following

    a pensioner with state and private pension: State pension would change in line w/ inflation so no affect right?

    a houseowner with a mortgage

    and someone who buys a lot of technological goods
    If the pension is index-based (as they are), there is no real income loss. If not, the pensioner loses on real income.

    Inflation helps the borrower more than the lender, as what the lender receives at the end would be worth less in real terms. This is one of the reasons for charging interest, to compensate for the loss in worth of the asset due to inflation.

    If we assume that technological goods are inflationary, the consumer obviously suffers by having to pay increasing prices. If the good is treated as capital (i.e. an asset) it would be worth less in future.
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    in the case of the private pension i forgot to add that it remains the same
    you've just confirmed what i thought for 1 and 3
    however i'm slightly unclear about the mortgage one still
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    (Original post by MIZZ)
    in the case of the private pension i forgot to add that it remains the same
    you've just confirmed what i thought for 1 and 3
    however i'm slightly unclear about the mortgage one still
    OK:

    Say I lend you £100 now, and the pair of trainers I wanted were £50 at the time. Assuming I charge no interest, 50% inflation would make them worth £75, so I can't buy two pairs of trainers as I could before, I've lost on real income. Silly example but always helps me
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    ah yes
    that's the effect on the lender
    i need the affect on the borrower i.e person with mortgage

    this bit kind of confused me :
    Inflation helps the borrower more than the lender, as what the lender receives at the end would be worth less in real terms

    btw i appreciate ur help!
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    (Original post by MIZZ)
    ah yes
    that's the effect on the lender
    i need the affect on the borrower i.e person with mortgage

    this bit kind of confused me :
    Inflation helps the borrower more than the lender, as what the lender receives at the end would be worth less in real terms

    btw i appreciate ur help!
    OK, the borrower...

    You own a mortgage. It's for £100,000. Inflation pushes your house price to £200,000. You're now paying half the value of the house on your mortgage. Sell your house and you've made an extra £100,000, not that it'll buy you a better house as other prices may have gone up, but you're better off than if you didn't borrow.

    Hope it helps
 
 
 

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