Mortgages in principle

Mortgages in principle explained

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Thinking about buying a property? We explain all you need to know about getting a ‘mortgage in principle’, also know as an ‘agreement in principle’ or a ‘decision in principle’

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What is a mortgage in principle?

A mortgage in principle is a written estimate from a bank or building society that gives you an indication of how much money you can borrow. You can show it to estate agents and vendors to prove you’re a serious buyer and can, in theory, get a mortgage.

If you’re getting a mortgage jointly with someone else, the mortgage in principle will state how much it will lend based on your joint application.

A mortgage in principle may also be called:

  • An agreement in principle
  • A decision in principle
  • A mortgage promise
  • An approval in principal

Is it a good idea to get a mortgage in principle?

A mortgage in principle estimate will give you an idea of the size of mortgage you’re likely to be offered. It will also provide some reassurance that you’ll be able to buy a property, especially if you have any concerns about your credit record. All this information will help you search for a property in your price range.

Having a mortgage in principle will also give you credibility with estate agents and vendors. It shows you’re serious about buying and have the means to buy the properties you’re viewing.

How can I get a mortgage in principle?

Typically, you can apply for a mortgage in principle online, by phone or by calling into a high street lender’s branch.

Mortgages in principle should be free; some lenders can issue them in just a few minutes.

When you apply for a mortgage in principle the lender or adviser will ask for:

  • Personal details such as your name, date of birth and address
  • Address details for the past three years
  • Information about your income
  • Information about your expenditure and existing credit agreements

The lender will use the information you supply to arrive at a figure that ‘in principle’ it would be willing to lend you. It will then give you a letter or certificate stating the maximum amount it could potentially lend.

You won’t need supporting documents, such as payslips or bank statements, to get a mortgage in principle. But you will need these when you make a full mortgage application.

How long does a mortgage in principle last?

Mortgages in principle are usually valid for between 30 and 90 days, depending on the lender. They can often be renewed if they expire before you can make an offer on a house or flat. Just remember to check whether the lender will run another credit check that will appear on your file and could damage your credit score.

Can a mortgage in principle affect my credit score?

When you apply for a mortgage in principle, the lender will ask for your permission to run a credit check. It’s important to know if this will be a ‘hard’ credit check or a ‘soft’ credit check – don’t be afraid to ask.

A hard credit check will leave a footprint on your credit record that other lenders will see. This could affect your credit rating in the future. If the lender does a soft check (also known as a ‘quotation search’), other lenders won’t see it on your credit file.

How reliable is a mortgage in principle?

A mortgage in principle is not binding on you or the lender that issues it. It’s simply an estimate of how much you could borrow from that lender, based on the information you’ve given it about your financial situation. A mortgage in principle gives you a good idea of what sort of property you can afford. But it is not:

  • A mortgage offer
  • A guarantee that you’ll be able to borrow a certain amount of money from a certain lender
  • A commitment that you will take out a mortgage with a particular lender
  • Linked to any particular property you might buy

Why might a mortgage in principle be declined?

There are a number of reasons why you might be declined for a mortgage in principle. These include:

  • You have a poor credit history such as missed payments or a County Court Judgment
  • You’re not on the electoral register
  • The lender has concerns about your debts
  • You don’t fit that particular lender’s demographic

Being declined for a mortgage in principle doesn’t mean you won’t get a mortgage from another lender. Speak to an independent mortgage broker who can advise you which lenders are best to approach.

What happens after I get a mortgage in principle?

Once you’ve got a mortgage in principle, you can use it to help you find a new home you’re likely to be able to afford. If you make an offer that is accepted, the next step is to apply for an official mortgage offer. There’s no guarantee you’ll get a mortgage offer from the lender that gave you a mortgage in principle, but you can approach other banks and building societies if it turns you down.

You’re also under no obligation to take out a mortgage with the lender that gave you a mortgage in principle, so shop around for the best deal when you find your dream home.

What’s the difference between a mortgage in principle and a mortgage offer?

A mortgage offer is official confirmation from a lender that it will give you a mortgage for a particular property. A mortgage in principle is an estimate of the amount a bank or building society could lend you based on what you’ve told it about your finances. You can make an offer for a property based on a mortgage in principle, but you’ll need a full mortgage offer to go any further.

To get a mortgage offer you’ll have to complete the full mortgage application process and provide all the information the lender requires to carry out its underwriting checks and conduct a valuation of the property.

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