You need to think of many things before you can officially buy a property. For example, applying for a mortgage isn’t as simple as just filling out an application form online. There are factors like eligibility criteria, deposit requirements and your credit score, amongst many other things you must be aware of. Some first-time buyers may have heard about these issues, but it’s a different matter going through the process.
But don’t worry; we’ll address all of these common issues and questions that people face within this article. We’ll explore mortgages, what help is available for first-time buyers, and which neighbourhoods may be attractive for a first time buyer in Leicester.
Let’s get started.
Getting a mortgage in Leicester
Now, unless you’ve got the money saved up, you’ll need a mortgage to get started with buying a home in Leicester. This is often the biggest hurdle for many first-time buyers.
How much can you borrow?
Most mortgage providers will allow you to borrow between 4 and 4.5 times your income. Some providers may even go as high as five times your income. If you’re making a joint application, then both partners’ income is included as the overall income value. So, for example, if both partners earn £30,000 a year, they would have an income value of £60,000. This allows them to apply for a mortgage of between £240,000 to £270,000.
Why might a mortgage application be declined?
Now, it’s a good idea to be aware of any reasons why a mortgage application can be declined. This can help ensure that you’re eligible before applying.
Here are some of the most common reasons people are declined every year:
One of the most common reasons for mortgage application rejection is a lack of sufficient income to cover the mortgage repayments. Lenders typically assess an applicant’s income to determine if they can comfortably afford the mortgage.
Poor Credit History
This is probably one of the most common reasons why an application is declined. Credit reports are used to assess creditworthiness, and a low credit score can lead to rejection. It’s a good idea to check your credit report for any missed payments, defaults, or County Court Judgments (CCJs).
High Debt Levels
Debt-to-income ratios are used to evaluate mortgage applications. This means if there are high levels of existing debt in the form of outstanding loans, credit card balances and personal loans, it can affect your ability to qualify for a mortgage.
Mortgage lenders typically require a down payment (deposit), and the size of this deposit can vary. If you don’t have a sufficient deposit, you may not meet the lender’s requirements.
Lenders prefer borrowers with stable employment histories. You will typically need to show that you have spent the last three months to six months in your current position. Additionally, three job changes in the last 12 months are automatically seen as a red flag. This is because frequent job changes raise concerns about your ability to make regular mortgage payments.
How much deposit do you need for a first-time buyer?
This can depend on your lender. However, typically, a first time buyer will need at least a 5% deposit. For other lenders, it will be 10% of the property price.
Let’s say, for example, the average property price in Leicester is £300,000. A 5% deposit will be £15,000, while a 10% deposit will be £30,000. You will need to have these funds readily available when you make a mortgage application.
What is the average deposit for a first-time buyer in Leicester?
Most first-time buyers are likely to purchase a two-bedroom house. Currently, the average value for those properties is £207,638. This means you will need a deposit of £10,382 for a 95% mortgage with a 5% deposit. For a 10% deposit on a 90% mortgage, you will need £20,764.
Do I get help as a first-time buyer?
Now, if you’re wondering how you’ll be able to save up for a deposit or if there are other routes to becoming a first time buyer in Leicester, you’re in luck. There are schemes available that can make the journey easier. Take a look at the following:
Help to Buy Shared Ownership
While the Help to Buy scheme ended in the UK as of March 2023, there is still the option of the Shared Ownership scheme. This allows first time buyers to purchase a percentage of the property and then pay the rest back through rent.
You will purchase somewhere between 25-75% of the property. You will then pay both mortgage and rent for the remainder.
However, there is an eligibility criteria, you must be a first time home buyer, and your household income must be £80,000 a year or less. Additionally, you don’t have the means to afford all of the deposit and mortgage payments for a home that meets your needs.
There are other eligibility criteria, but they aren’t relevant if you’re a first-time buyer.
Help to Buy Armed Forces
Another avenue is the Forces Help to Buy scheme. This initiative allows service personnel to borrow up to 50% of their salary, up to a maximum of £25,000 that can be put towards the purchase of a property.
Lifetime ISA Scheme
Finally, Lifetime ISAs or LISA’s can also help you save up for your first-time property purchase. You will need to sign up for this at least 12 months before you make a purchase. The scheme allows you to save up to a maximum of £4000 a year, which the government will top up by 25%. So if you save a maximum of £4000, you’ll receive an extra £1000.
Where is the cheapest place to live in Leicestershire?
One of the best ways to ensure you can find a property that you can actually buy is by looking for a cheap place to live.
Now, on average, the cheapest postcode to buy property in Leicester is the LE1 area. Here, a 2-bedroom property will cost, on average, £160,480, which is much cheaper than the overall average of £207,638.
For many first time buyers, the journey can be extremely stressful. However, as long as you begin preparing ahead of time, you can make the purchase that much easier. Begin by signing up for a Lifetime ISA; if nothing else, it will help with reducing the burden of the deposit. Next, research different mortgage lenders and ensure you’ll be eligible by checking your credit report ahead of time. Finally, look for properties in areas where the property price matches your budget.
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