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Metrics For Buying

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  1. debt ratio = your total debt repayment / your salary <38
  2. housing cost ratio = housing cost / net salary <30 (<51 in london)
  3. house price earnings ratio = house price / annual salary <2.5 single, <4.5 joint)
  4. house price rent ratio = house price / equivalent annual rent
    • >21 renting is better
    • <16-20 equivalent options
    • 16-20 should buy
  5. monthly rent * 110 = 9 year renting costs
    • < real house price = buy
    • > real house price = rent
  6. 5 year rent costs + 5 year rent commute costs
    • < 5 year buy costs + 5 year buy commute costs, rent
    • > 5 year buy costs + 5 year buy commute costs, buy
  7. house price to asset ratio = house price / (house price + other assets inc pension) <60
    1. housing is the biggest asset for most people, which is financially poorly diversified and risky
  8. current year > 2017
    • mortgage interest relief is removed
  9. current year > 2018
    • Brexit, Article 50

I want to buy a house but it seems house prices are priced in and we are at peak. We cannot time markets.

So there must be some metrics that we can use that make it an easier decision.

Rent is tied to local demand, local affordability, yield and asset prices whereas mortgage is tied to interest rates.

House deposit stop the bank from taking my house from me during house price crashes. I would expect my mortgage to be inflated away over the mortgage term, so my monthly mortgage costs will be far less than equivalent rent costs in 5 or 10 years.

What are you using?

Edited by phantominvestor

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