A mortgage in principle also commonly referred to as ‘decision in principle’ or ‘agreement in principle’ is essentially an approximate estimate in writing confirming how much a mortgage lender is willing to lend a mortgage applicant. This usually acts as evidence to the estate agent that you are a committed buyer who has the means to make a realistic offer. Further to this, before viewing a property – an estate agent will typically ask that you obtain a decision in principle. 

When you apply for a mortgage in principle, the lender will carry out checks against your credit file to establish whether you will be eligible to borrow from them.

Why do you need a Mortgage in Principle?

An agreement in principle is useful in knowing how much lenders are willing to allow you to borrow which is certainly an advantage when viewing properties. You may find out that you could borrow more than you anticipated or that you should scale back on your budget. 

Having a decision in principle also provides the estate agent and vendor confidence that your offer holds credibility and that obtaining finance for the purchase will be viable. This will also help in maintaining a strong negotiating position especially if competing offers are not backed up by a mortgage in principle. 

In addition to this, a mortgage in principle will determine the price range an individual should be considering when viewing houses. It will also give you a clear idea of the deposit required, your monthly mortgage payments, your affordability and your limits. 

How long does a Mortgage in Principle last?

An agreement in principle will commonly last between 60-90 days, this varies between lenders so you may want to contemplate getting one that lasts longer if you are still in the early stages of house hunting.

It is helpful to note that AIP’s can be renewed however the lender may need to conduct a hard search. An agreement in principle usually involves a soft search which means there is no impact on your credit score. With that being said, too many searches done by multiple lenders can affect your credit score.

How long does it take to get a Mortgage in Principle?

This will vary from lender to lender, however most mortgage in principles will come back the same day but some can take a few days or even longer. This is provided you have all your information on hand. 

Are Mortgage in Principles accurate and reliable?

Mortgage in principles are typically regarded as reliable however they are only an estimation. The lender’s criteria, your financial situation and deposit level can affect the amount. 

Nonetheless, you can typically rely on being able to purchase a home similar to the amount stated on your mortgage in principle. Just remember to consider, deposit, and moving fees into your purchase. 

It is important to note that the amount on the mortgage in principle is an upper limit, do not stretch yourself out financially by aiming for the top end of your limit. 

Why your Mortgage in Principle could be low?

You should remember that an agreement in principle is simply an indication of the amount a lender is willingly to lend you provided that nothing significant changes between now and when your mortgage application is submitted. 

These are the most common reasons for a decline:

• A change in employment – changes in your personal circumstances may affect the outcome of your application, even if your change of job results in higher paid income. It is difficult for lenders to ascertain whether your income is a consistent source. They typically determine your overall stability from how long you have remained at the job as you are more likely to have a fixed income for the duration of the mortgage. 
• Failure to meet the lender’s criteria – even if you initially pass the lender’s credit checks, there may be a series of additional checks that you may not be aware of yet. These could be the lender’s own internal checks that they may have in place. 
• A change in outgoings or income – if you have not received any payslips then verifying your income will be difficult to prove. 
• Taking out additional credit and financing – when assessing your credit history, lenders will typically be able to see six years worth of payment history. This will include any payments made in full and also ones that may have been missed. 
• Missed payments, arrears or CCJ’s – despite having a spotless record, accumulating a mass of missed payments shortly before your mortgage application process will affect your affordability. Recent entries tend to be scrutinised more closely which is important to ensure that no adverse entries are recorded at the timeframe of your mortgage application process. 
• Discrepancies on application – it is imperative that applicants are upfront about their details because the lender will be able to discover any discrepancies due to the level of checks they carry out. If any information is missed, this may result in a decline. 
• Difference in information held at credit reference agencies – as mortgage lending typically requires a large sum of money, lenders will often cross reference your credit report at different Credit Reference agencies when it is time to submit your full application. At this point, there is a chance some unseen information may be discovered as data between credit agencies can vary. 

What do I need for a Mortgage in Principle?

To attain a decision in principle, you will need to gather some personal information. 

You will need:

• Your full name and date of birth.
• Three years record of address history – having a stable address should work in your favour. 
• Your income details – payslips or bank statements. 
• Monthly expenditure – such as utility bills, subscriptions and any credit cards. These will be used to assess your affordability. 

You’ll also need to approach a mortgage lender directly or through a mortgage broker. You will not be required to go through the full mortgage application process, however this will need to be done when you have placed an offer on a property and it has been accepted. 

Let us help you get a Mortgage in Principle

Looking to buy a property as a second investment or first time buyer? Speak to one of our award winning brokers on 0800 32 88 680 today. We have specialist advisors available to assist you with your mortgage needs.