What is a mortgage in principle?
A mortgage in principle is a statement from a bank or building society that tells you how much money they might be prepared to lend you. It’s not binding – you could be refused a mortgage on those terms – but it’s a helpful indicator of what you could borrow, and it can help you to secure a mortgage.
If you’re a first time buyer with no property that can be sold to finance the purchase, getting a mortgage in principle is a great way of convincing lenders that you can afford a property.
A mortgage in principle is also known as an agreement in principle or a decision in principle.
What’s the difference between a mortgage in principle and a mortgage offer?
Getting a mortgage in principle isn’t the same as a mortgage offer.
When a lender gives you a mortgage in principle, they’re not making you a binding offer – they’re just telling you how much you might be able to borrow on certain terms.
Importantly, lenders don’t make the same financial checks that they would make if they were giving you a mortgage offer. So, they might not offer you a mortgage on the same terms if they carried out a more detailed assessment of your finances.
Do you need a mortgage in principle to make an offer?
You don’t need to get a mortgage in principle to make an offer – but it can help you to get your offer accepted. This is because it shows estate agents and house sellers that you’re serious about buying and that you have the financial power to go through with the purchase.
And there are other advantages of getting a mortgage in principle.
Firstly, it gives you a good understanding of what you can realistically afford, which you can use to inform your house search. You may find that you can afford more than you thought. Alternatively, you may have to lower your expectations a little.
Secondly, by getting an idea of what you can realistically afford, you reduce the risk of applying for a mortgage that’s too big for you and getting rejected. A mortgage rejection looks bad on your credit score, which can make it harder to get a mortgage approved. So, it’s something that you want to avoid. Getting a mortgage in principle is a low risk way of finding out what mortgage you’re likely be approved for.
Will getting an agreement in principle affect my credit score?
You’ll have to undergo a credit check to get a mortgage in principle. But this won’t necessarily affect your credit score.
Your chosen lender will ask you for your permission to run a credit check. This will be either a ‘soft’ or a ‘hard’ check. It’s important that you find out in advance which one they’ll use as they affect your credit report differently.
A soft credit check won’t show up on your credit report, so it shouldn’t affect your credit score. On the other hand, a hard credit check will show up on your credit report. While this is unlikely to affect your credit score much on its own, you need to be careful as several hard checks over a short period could make getting a mortgage more difficult. This is because it would look to lenders as though you’ve been rejected for credit on multiple occasions.
Can you get more than one mortgage in principle?
There’s nothing to stop you from getting a mortgage in principle from multiple different lenders. You might want to do this if you receive an offer that was less than you were expecting, or if you see a better deal elsewhere.
However, before you start seeking offers from multiple different lenders, check whether they’ll be carrying out soft or hard credit checks, as several hard checks can hurt your credit score.
What do you need to get a mortgage in principle?
When you apply for a mortgage in principle, your lender will want to know various things about your financial situation, from your income to the size of your deposit. You’ll need to provide:
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Information about your income
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Evidence about your spending habits, such as credit card bills and subscriptions
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Information about any credit agreements
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Your address history for the past three years
Make sure that any information you give is correct. Your mortgage in principle application could be rejected if you provide incorrect information.
How reliable is a mortgage in principle?
It’s important to remember that a mortgage in principle isn’t legally binding. While it’s a good indication of whether you’ll be able to get a mortgage, it isn’t a guarantee – your mortgage application could be rejected on the same terms as the mortgage in principle.
This is because lenders will carry out a much deeper investigation into your finances when you apply for a mortgage. For example, they’ll want to see verification of your income in the form of payslips and bank statements.
Furthermore, it’s not unheard of for lenders to change the borrowing criteria between giving you a mortgage in principle and making you a potential mortgage offer.
What can go wrong with a mortgage in principle?
Your credit score could be damaged if your mortgage in principle were rejected.
The reasons why your application could be unsuccessful include:
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Your income is too small or unreliable
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Your have a poor credit history
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Your application included incorrect information
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You have too much debt
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You spend too much of your income
Remember that even if your mortgage in principle is approved, it’s no guarantee that your full mortgage application will be accepted. This is because lenders take a closer look at your credit history and financial circumstances when you make a full mortgage application.
How long does a mortgage in principle last?
A mortgage in principle will usually be valid for between 60 and 90 days, but this will vary between lenders. You may need to renew your application if you haven’t found a property in that time. They can usually be renewed easily, provided your circumstances haven’t significantly changed.
If your circumstances have changed significantly, like if you’ve taken on a lot of debts or lost a large proportion of your income, you may have to start your application again.
If some of the details of your application have changed, for example if you’ve changed jobs, it’s worth checking with your lender to make sure that your mortgage in principle is still valid.
Should I get a mortgage in principle?
If you’re a first time buyer, getting a mortgage in principle is a helpful way of reassuring estate agents that you’re able to buy a property.
To work out what you could borrow with a mortgage in principle, talk to a mortgage advisor.
Updated September 2022 by Adam Rivers