MORTGAGE
AGREEMENT
IN PRINCIPLE

If you’re starting the process of buying a house, you might have learned already that you need a mortgage in principle before you make a formal mortgage application. This document gives you an idea of how much you can borrow and in some cases, having one can help you view a property ahead of buyers without one.

This guide explains what a mortgage in principle is, how you can get one and where you can go for advice.

What is a mortgage in principle?

It’s a certificate that tells you how much a lender is willing to lend you - in theory. It’s not a guarantee of being accepted for a mortgage or for that amount but having one is the first step in the process.

A mortgage in principle lets you know that if you pass a lender’s affordability checks, you could potentially buy a property up to the stated value. You’ll also be able to see what your monthly repayments could hypothetically cost.

There are lots of ways that people refer to a mortgage in principle. You might have heard it called a:

• Decision in principle
• Mortgage agreement in principle
• Mortgage promise
• Acceptance in principle

Estate agents, banks and brokers each call them different names but ultimately, each one means 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.

You can use this certificate to let sellers and estate agents know you’re in a good place to look for properties. The online certificate (which can be printed) is 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, which is confirmation that your lender is going to provide you with a mortgage so you can complete on 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, 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 favor you over people without a mortgage in principle.

How do you get one?

Our online mortgage finder is a great way to start the process. It’s designed to be easy and quick to use and will show you:

• the deals you could be eligible for
• how much you could borrow to buy a property
• today’s lowest rates and monthly payments from across the market

Filling out the online mortgage finder doesn’t mean that you’re committing to a mortgage application but it’s a quick way to get an idea of how much you can borrow and who with.

If 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

A mortgage in principle has an expiry date

60 to 90 days is the usual time frame that a decision in principle will last for, although if your search for the right home takes longer it should be fairly straightforward to extend it as long as your circumstances haven’t changed . Mortgage deals change frequently and having a mortgage in principle doesn’t lock in a rate so it’s sensible to keep an eye on what your payments will be if rates change during your search.

A lender can change their decision

A mortgage in principle isn’t a guarantee of a mortgage because your lender could change their mind about lending you money based on their finding from their underwriting checks, or the survey on your property.

When they’re assessing your pay slips, as an example, they might see a fluctuation of income and wonder whether your pay is stable enough throughout the year to confidently repay your mortgage repayments. That’s certainly not always the case as every lender has different criteria, but it’s worth keeping in mind.

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 in order to reduce the amount you’re borrowing.

That can be frustrating for you and to avoid the likelihood of this happening, check your eligibility for the mortgage you’re applying for ahead of submitting your mortgage application.

A mortgage adviser’s help is invaluable at this stage because they can quickly check if your circumstances allow you to meet the lending criteria rather than you apply without knowing and then getting knocked back.

Does applying for a mortgage in principle affect your credit score?

It won’t if you apply for L&C’s mortgage in principle. There’s no credit check with our process, so your score should remain intact. This sets you up for a better chance of approval whereas some mortgage brokers and banks will carry out a credit check which will potentially affect your credit report.

Don’t apply for multiple mortgages in principle

It’s tempting to apply to multiple lenders in the hope that one will accept you but ultimately, this is like throwing mud at a wall and hoping some will stick and can seriously impact your credit worthiness. Multiple applications for credit can suggest that you’re an unstable borrower with an urgency to borrow and in the eyes of a lender, that doesn’t make you an ideal borrower.

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.

What happens after you receive a mortgage in principle?

Once you’ve found a property you love, you can begin the official mortgage application process. As part of this, your lender will want a valuation report for the property before they’ll issue a formal mortgage offer.

There are three levels of valuations that are usually performed by a surveyor who’s a member of the Royal Institute of Chartered Surveyors.

Depending on the property type, your lender and your preference, you can either opt for:

• Basic valuation (Level one)
• Homebuyer’s report (Level two)
• Building survey (Level three)

Your lender will also complete any final checks on your circumstances, including a look at your credit history and the source and reliability of your income and your outgoings.

If your application is successful, you’ll receive a formal mortgage offer which is official confirmation from the lender that they’ll provide you with a mortgage.

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.

Published 4th October 2023.