If you’re in the process of buying a house, you might have learned already that you need a mortgage in principle before you submit a formal mortgage application. This document provides an estimate of how much you can borrow and can sometimes help you secure a property viewing ahead of buyers without one.
This guide explains what a mortgage in principle is, how you can get one and where to seek advice.
What is a mortgage in principle?
A mortgage in principle is a certificate indicating how much a lender is theoretically willing to lend you. It’s not a guarantee of a mortgage approval but it’s the initial step in the mortgage process.
This certificate is an indicator that if you pass a lender’s affordability checks, you might be able to buy a property up to the stated value. You’ll also be able to see what your monthly repayments could hypothetically cost.
Different names for Mortgage in Principle
There are lots of ways that people refer to a mortgage in principle. You might have heard it called a:
- Decision in principle (DIP)
- Mortgage agreement in principle (MIP)
- Mortgage promise
- Agreement in principle (AIP)
Estate agents, building societies, banks and brokers may call them different names. However, they all mean the same thing.
How is a mortgage in principle different to a mortgage offer?
If you successfully apply through L&C, you’ll be sent an ‘L&C Decision in Principle’ certificate.
The online certificate (which can be printed) can be shown to sellers and estate agents as proof that you have an understanding that if you pass a lender’s checks, you can buy a property up to a certain amount.
Once you’ve found a property, completed the full mortgage application process and passed your lender’s affordability checks, you could receive a mortgage offer. This is confirmation that your lender is going to provide you with a mortgage to purchase the property you love.
Why do you need a mortgage in principle?
Without one, you have no idea how much you can borrow. That makes viewing properties tricky because the homeowner and estate agent usually prefer buyers in a position to proceed.
From their point of view, they could have ten people view the house but five of them might not be able to even buy the property, which is a waste of time for all involved.
However, by taking that first step and having an indication of how much you can afford, and which lender is likely to approve you, the seller and estate agent have confidence in your ability to buy and may even favour you over people without a mortgage in principle.
How do you obtain a Mortgage in Principle?
You can start the process with our online mortgage finder which is designed to be easy and quick to use. It will show you:
- how much you could borrow
- the deals you could be eligible for
- today's lowest rates and payments from across the market
Using the online mortgage finder doesn’t commit you to a mortgage application, but it gives you a good idea of how much you can borrow and what your mortgage might cost.
If you need a mortgage in principle now, the online mortgage finder is the place to start.
What do you need to apply for a decision in principle?
- Details of existing credit agreements
- Addresses from the last three years
- Details of income amount and source
- Details of any other outgoings
How long does a mortgage in principle last?
A mortgage in principle does have an expiry date, and typically lasts for 60 to 90 days. If your search for the right home takes longer, you can usually extend this period, provided your circumstances haven’t changed.
Mortgage deals can change frequently. Having a mortgage in principle doesn’t lock in a specific rate. It’s important to monitor rate changes and how they might affect your payments during your home search.
If your mortgage in principle expires before you need it, you can re-apply. However, be cautious about requesting too many agreements in principle, as multiple credit searches could negatively impact your credit score.
Mortgage lenders can change their decision
A mortgage in principle is not a guarantee of a mortgage. Your lender could change their decision about lending you money based on their findings from their underwriting checks, or property survey.
Every lender has different criteria that they’ll check. A definite will be looking at your pay slips to check if your income is enough to be able to make your mortgage repayments.
Your lender could also change the terms that are on offer to you if they think another route would be more affordable for your circumstances. For example, you might have enquired about a mortgage with a small deposit of 5% but on reflection the lender could decide that a larger deposit is required to reduce the amount you’re borrowing.
An L&C mortgage adviser’s help is invaluable at this stage because they can quickly check if your circumstances mean you’re likely to meet the lending criteria, rather than you apply without knowing and then getting knocked back.
Does applying for an L&C decision in principle affect your credit score?
Applying for a mortgage in principle through L&C doesn’t involve a credit check, so your credit score remains unaffected. However, some mortgage lenders and other brokers might perform a credit check that could impact your score.
Don’t apply for multiple mortgages in principle
Avoid applying for multiple mortgages in principle with different lenders as this can harm your credit score. Multiple applications can suggest that you’re an unstable borrower with an urgency to borrow which could reduce your chances of getting approved.
Speak to one of L&C’s mortgage advisors to check your eligibility before you enquire about a mortgage in principle, so you can see whether you’re a good match for that lender’s criteria.
Next steps after you receive a mortgage in principle?
Once you’ve found a property, you can begin a formal mortgage application. Your lender will want a valuation to be carried out on the property before they’ll issue a formal mortgage offer.
There are four levels of valuation that are usually performed by a surveyor who’s a member of the Royal Institute of Chartered Surveyors. These vary from a basic report to confirm the value of the property through to a full building survey.
Your lender will also complete any final checks on your circumstances, including your credit history and the source and reliability of your income and outgoings.
If your application is successful, you’ll receive a formal mortgage offer which is official confirmation from the lender that they’ll provide a mortgage to you.
Your next step now
Head to the Online Mortgage Finder
If you’re excited to kickstart the process we get it. We created the Online Mortgage Finder to keep the process super simple and show you how much you could borrow and the deals you’re likely to qualify for. You can then submit the finder and get your decision in principle certificate.
