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Getting a mortgage in principle

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What is a mortgage in principle?

A mortgage in principle, also often called an agreement in principle, a decision in principle, an approval in principle or a mortgage promise - is a written estimate from a bank or building society that indicates  how much 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.  

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How to get a mortgage in principle 

Getting a mortgage in principle is one of the first steps towards understanding how much you’ll be able to borrow and therefore the value of the home you can afford.  

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, and some lenders can issue them in just a few minutes. 

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What do I need for a mortgage in principle?

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 and monthly outgoings 

  • Information about your expenditure and existing credit agreements 

The lender will use the information you supply to arrive at a figure that they would be willing to lend you ‘in principle’. They 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.  

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How to compare mortgages with MoneySupermarket

Mortgage comparison is easy with MoneySuperMarket. 

  • Buying or remortgaging?

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  • Tell us a few details

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  • We browse the market

    We sift through mortgage deals from our leading panel of providers. This way, you can see what's on offer and make an informed choice

Can you get more than one mortgage in principle?

Yes, you can get more than one mortgage in principle. It might be particularly tempting if the initial bank or building society you approach gives you a lower figure than you’d hoped, or if you spot better mortgage rates elsewhere. 

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Does a decision in principle affect your 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. Our guide explains ways you can improve your credit score.  

However, when you ask for a decision in principle it’s worth finding out whether the potential lender will do a hard or soft search on your credit file. Too many hard searches in a short space of time could damage your credit score because it could suggest to potential lenders that you’re desperately searching for credit. 

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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 as this could have implications for your credit rating. 

Providing you supply the correct information when asked, there are few things that can go wrong with a mortgage or agreement in principle. You could be rejected for not meeting a potential lender’s requirements or you may not be granted as large a mortgage as you’d hoped.

A poor or limited is often a cause here. If you’re declined for a mortgage in principle, it could also damage your credit rating further. There could also be delays to the mortgage in principle if you fail to supply supporting documents in time.   

There’s a big difference between a mortgage in principle and a mortgage offer. A mortgage offer is an official confirmation from a lender that it will give you a mortgage for a particular property.  

You can make an offer for a property based on a mortgage in principle. Once accepted, 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.  

Generally speaking, you won’t need a mortgage agreement in principle to look around a property you’re interested in. But this may depend on the market condition in the area you’re hoping to find a house in.  

For instance, if there are too many potential buyers and a shortage of properties for sale, estate agents may not process your offer without being presented with a mortgage in principle first. 

A mortgage in principle is particularly handy for a first-time buyer. In fact, you don’t have a property to sell to fund your new purchase, so you must rely on borrowing with a mortgage. 

Estate agents are likely to encourage you to get a mortgage in principle, as this will show and reassure everyone that you’re able to afford a mortgage and buy the house you want. 

Other mortgage types to consider

Other mortgage types you might want to consider if you’re looking to remortgage include:

  • Capped-rate mortgage – a capped-rate mortgage is a variable-rate mortgage, but there is a limit to how high the rate can go. This can be useful if you want a variable-rate mortgage, while avoiding unaffordable payments if the rate rises

  • Discounted mortgage – a discounted mortgage is another type of variable-rate mortgage. This offers a discounted rate on the lender’s standard variable rate for a certain period of time

  • Offset mortgage – an offset mortgage helps to reduce the overall interest you pay by offsetting your savings against the outstanding balance of your mortgage. But this means you won’t be gaining any interest on your savings during the deal

Fixed-rate mortgages have an interest rate that stays the same for a set period. This could be anything from two to ten years. Your mortgage payments are the same every month and you don't need to worry about fluctuations in interest rates.

If you choose to leave the deal before the end of the fixed term, most will charge you a penalty. This is known as an early repayment charge (ERC).

Interest rates adjust periodically with a variable-rate mortgage, which means repayments may change throughout the loan term. Usually, the interest rate changes in relation to the Bank of England base rate. This is very influential on variable interest rates, as is the base rate of each lender.

For standard variable-rate (SVR) mortgages, each lender has a SVR that they can move when they like. In reality, this tends to roughly follow the Bank of England's base rate movements. SVRs can be anything from two to five percentage points above the base rate (or higher). They can also vary massively between lenders.

The other type of variable mortgage is a discount mortgage. Rather than being linked to the Bank of England base rate (like a tracker mortgage), discounts are linked to the lender's standard variable rate (SVR). For example, if the SVR is 4.50% with a discount of 1%, the payable mortgage rate is 3.50%. If the SVR rose to 5.50%, the pay rate would rise to 4.50%.

The problem with discounts is that SVR changes are at the lender's discretion. So, your mortgage payments could change even if there has been no alteration in the Bank of England base rate. What's more, even if the SVR changes following a move in the base rate, there is no guarantee that it will increase or decrease by the same amount.

As a result, trackers are usually seen as more transparent than discounted deals. They are also often seen as being fairer for the borrower.

For example, when the base rate fell from 5.00% to 0.50% between October 2008 and March 2009, Lloyds TSB was the only top-20 lender to reduce its SVR by the full 4.50%. All the others cut their rates by less.

When the Bank of England raised the base rate from 0.25% to 0.5% in November 2017, anyone who wasn’t on a fixed-rate mortgage was at risk of seeing their repayments increase. A number of leading mortgage lenders followed and increased their tracker and/or SVR rates a month later.

Most mortgage deals carry arrangement fees, which can vary from a few hundred pounds up to a couple of thousand.

Also bear in mind that these set up costs can sometimes be made up of two fees. Lenders may charge a non-refundable booking fee, which is effectively a product reservation fee. If your remortgage falls through and you don’t end up taking the mortgage deal, you won’t get this fee back.

The second type of fee is an arrangement fee which you pay on completion of the mortgage, so you won't have to pay it if, for any reason, you don't take the mortgage.

Calculate how early you could pay off your mortgage. But make sure you read our mortgage overpayment guide first, as overpaying isn’t the right move for all homeowners.

Mortgage overpayment calculator

Remember to always factor additional fees into the overall cost of any deal. Even if a lender is offering a seemingly unbeatable rate, steep fees could mean that it actually works out to be more cost-effective to opt for a higher rate with much lower fees or no fee at all.

The best remortgage rate for you depends on how much you are looking to borrow. A high fee is often worth paying in order to secure a low interest rate if you are applying for a large mortgage. But those with smaller mortgages could be better off opting for a higher rate and lower fee.

However, while this is the general rule, you need to work out the total cost over the term of the deal. For example, if you are going for a two-year fixed rate, you need to work out the cost of your repayments over the term. You can do this by finding out what the monthly payment will be using our  mortgage calculator – and then multiplying by 24. You then need to add on the arrangement fee to find out the total cost.

You will likely find that you have more mortgage deals to choose from if you have a good credit history, so it’s worth making sure that your credit report is as good as it can be before applying for a remortgage. Paying off any outstanding borrowed credit you owe and making sure your current address is on the electoral roll can help to improve your credit score.

The more money you can save as a deposit, the less you’ll need to borrow as a mortgage loan. What’s more, having a bigger deposit can help you get access to more competitive mortgage rates.

Lenders will often have a maximum ratio they’re prepared to offer you. Instead, the rest will need to be made up with either a deposit or an equity loan like the government's Help to Buy equity loan scheme.

Using a mortgage comparison tool can give you a better idea of how much you’d need to pay in monthly costs and interest, the duration of the deal, the maximum LTV, and any product fees you may need to pay for the remortgage deals available based on your borrowing requirements.

It’s important to remember that the mortgage deals you’re offered when you go to make an application may differ because they will then be influenced by your financial situation and credit history.

Get free mortgage advice and see deals from the whole of the market with broker London & Country. Call free from your landline or mobile on 0800 170 1943 any day. Read more about London & Country

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