A Mortgage in Principle gives you an idea of how much a mortgage lender may be willing to lend you.
It can be useful when you start looking for a home.
However, it is not a mortgage offer. The lender will need to carry out more checks before agreeing to the mortgage.
Understanding this difference can help you know what to expect when buying a property.
What Is a Mortgage in Principle?
A Mortgage in Principle is an early assessment by a mortgage lender.
You provide some basic information about your finances.
The lender then uses this information to estimate how much it may be prepared to lend.
For example, it may ask about your:
- income
- regular spending
- debts
- deposit
- employment
- financial commitments
It may also carry out a credit check.
If you meet its initial requirements, the lender may give you a Mortgage in Principle.
Does It Have Other Names?
Yes.
You may also hear it called an:
Agreement in Principle (AIP)
Decision in Principle (DIP)
Mortgage Agreement in Principle
These terms generally describe the same early stage of the mortgage process.
However, lenders may use slightly different processes.
Therefore, check what your lender’s document actually means.
Why Get a Mortgage in Principle?
A Mortgage in Principle can help you understand your possible buying budget.
For example, suppose you have:
Deposit: £30,000
and a lender indicates that it may lend:
£180,000
This could suggest a property budget of around:
£210,000
However, you also need to allow for buying costs.
More importantly, the £180,000 is not guaranteed.
When Should You Get One?
Many people get a Mortgage in Principle before they start making offers on properties.
This can give you an early idea of your borrowing options.
It may also help you avoid looking at homes that are far outside your likely budget.
However, you do not necessarily need one before you start browsing properties.
What Information Will You Need?
The information required varies between lenders.
However, you may be asked about your:
Income
Employment
Deposit
Loans
Credit cards
Car finance
Monthly spending
Dependants
Other financial commitments
If you are applying with someone else, the lender will normally need information about both applicants.
Will You Need Proof of Income?
You may not need to provide all your documents at the Mortgage in Principle stage.
However, you will normally need to provide evidence later.
For example, an employed applicant may need to provide:
- payslips
- bank statements
- details of employment
A self-employed applicant may need different evidence.
Therefore, make sure the information you provide is accurate.
What If You Are Self-Employed?
Self-employed borrowers can also get a Mortgage in Principle.
However, the lender may ask different questions about your income.
It may want information from your accounts or tax records.
The lender may also consider income over more than one year.
Requirements vary between lenders.
Therefore, check what evidence will be needed before making the full application.
Does a Mortgage in Principle Check Your Credit?
Often, yes.
However, the type of credit check can vary.
Some lenders use a soft credit search.
Others may use a hard credit search.
Therefore, check before applying if this is important to you.
What Is a Soft Credit Search?
A soft search allows information from your credit report to be checked.
However, it does not have the same effect as a full credit application search.
Other lenders do not normally see soft searches in the same way they see hard searches.
You can still see them on your own credit report.
What Is a Hard Credit Search?
A hard search is normally linked to an application for credit.
It can be recorded on your credit report.
Other lenders may be able to see that the search took place.
Several hard searches within a short period can be a concern because they may suggest that you are making several credit applications.
Therefore, check the type of search before making several Mortgage in Principle applications.
Does Getting a Mortgage in Principle Guarantee a Mortgage?
No.
This is the most important point.
A Mortgage in Principle is not a guarantee that you will receive a mortgage.
The lender has only completed an initial assessment.
You still need to make a full mortgage application.
The lender will then carry out more detailed checks.
Why Could the Mortgage Amount Change?
The amount shown in your Mortgage in Principle can change.
For example, the lender may discover that:
- your income is different from the amount entered
- your spending is higher
- you have other debts
- your credit history affects the application
- your circumstances have changed
- the property is not suitable
- the property valuation is lower than expected
Therefore, treat the figure as an indication rather than a promise.
What Happens After a Mortgage in Principle?
Once you find a suitable property, you can normally move towards a full mortgage application.
The lender will then need more information.
This can include evidence of your:
- income
- deposit
- employment
- debts
- financial commitments
The lender will also consider the property.
If everything is acceptable, it may issue a formal mortgage offer.
What Is the Difference Between a Mortgage in Principle and a Mortgage Offer?
The difference is important.
A Mortgage in Principle is an early indication of possible borrowing.
A mortgage offer comes later.
The mortgage offer is issued after the lender has carried out its full checks and is prepared to lend on the property, subject to the terms and conditions of the offer.
Therefore:
Mortgage in Principle = early indication
Mortgage offer = formal offer of lending
Do not confuse the two.
Does a Mortgage in Principle Reserve an Interest Rate?
Usually, getting a Mortgage in Principle alone does not mean you have secured a particular mortgage rate.
Mortgage rates can change.
The deal available when you make your full application may therefore be different.
The lender’s own process will determine when a mortgage product or rate is secured.
Therefore, check this when you are ready to apply.
How Long Does a Mortgage in Principle Last?
A Mortgage in Principle normally has a limited period of validity.
The exact period depends on the lender.
For example, it may remain valid for several weeks or months.
If it expires, you may need to apply again.
Your circumstances may also need to be checked again.
What If Your Circumstances Change?
Tell the lender if important information changes.
For example, you may:
- change jobs
- receive a pay rise
- reduce your working hours
- take out a loan
- increase your credit card debt
- increase your deposit
These changes could affect affordability.
Therefore, an older Mortgage in Principle may no longer give an accurate picture.
Can You Get More Than One Mortgage in Principle?
Yes.
However, applying for several without a good reason may not be useful.
This is especially important if lenders carry out hard credit searches.
Instead, it can help to understand which lenders may suit your circumstances before making several applications.
A mortgage broker may also be able to help with this.
Does a Mortgage in Principle Affect Your Credit Score?
It depends on the lender’s credit search.
A soft search should not affect your credit file in the same way as a hard application search.
A hard search will normally be recorded.
However, your mortgage application is not decided by a single universal credit score.
Lenders use their own lending rules.
Therefore, the effect of a search should be considered as part of the wider application.
Does a Mortgage in Principle Mean You Can Afford the Mortgage?
Not necessarily.
A lender may indicate how much it could be willing to lend.
However, you should also consider whether the mortgage is comfortable for your own budget.
For example, think about your:
- Council Tax
- energy bills
- food
- transport
- insurance
- home maintenance
- savings
- other regular spending
The lender does not know all your future plans.
Therefore, you do not have to borrow the maximum amount shown.
Maximum Borrowing Is Not Your Target
Suppose your Mortgage in Principle says you could borrow:
£220,000
That does not mean you should automatically look for a property that requires a £220,000 mortgage.
You may decide that:
£190,000
would give you more comfortable payments.
This could leave more room for savings and unexpected costs.
Therefore, treat maximum borrowing as a limit rather than a target.
Does Your Deposit Matter?
Yes.
Your deposit and mortgage together help determine your property budget.
For example:
Mortgage in Principle: £180,000
Deposit: £25,000
This gives:
£205,000
However, remember that you may need some of your savings for other buying costs.
Therefore, your actual property budget could be lower.
Don’t Forget Buying Costs
Your deposit is not the only upfront cost.
You may also need money for:
- legal costs
- mortgage fees
- property taxes
- surveys
- moving costs
- insurance
- repairs
Therefore, do not use every pound of your savings when working out your deposit.
Does the Mortgage in Principle Approve the Property?
No.
At this stage, you may not even have chosen a property.
The lender still needs to decide whether the property is suitable security for the mortgage.
It may arrange a mortgage valuation.
It can also have rules about certain types of property.
Therefore, approval involves both you and the property.
What If the Property Is Valued Lower?
Suppose you agree to buy a home for:
£250,000
However, the lender values it at:
£235,000
The lender may not provide the mortgage you expected.
You may need to:
- increase your deposit
- agree a lower purchase price
- reconsider the purchase
Therefore, a Mortgage in Principle does not guarantee lending on every property within your price range.
Can a Mortgage Still Be Declined?
Yes.
A lender can provide a Mortgage in Principle and later decline the full application.
This can happen for several reasons.
For example, there may be a problem with:
- affordability
- income evidence
- credit history
- the deposit
- the property
- the valuation
The lender may also discover information during the full application that was not available earlier.
What About Making an Offer on a Property?
Having a Mortgage in Principle can show that you have taken an early step towards arranging finance.
However, it does not guarantee that your purchase will go ahead.
The property transaction itself also follows different legal processes across the UK.
For example, buying a home in Scotland works differently from buying one in England or Wales.
Therefore, take advice from your solicitor about the property buying process where you live.
Mortgage in Principle in Scotland
The basic purpose of a Mortgage in Principle is similar across the UK.
However, the Scottish home-buying process has some important differences.
For example, properties are often marketed using an Offers Over price.
A Home Report also normally includes a property valuation.
Therefore, think carefully about how much you may actually need to offer and how this fits your mortgage and deposit.
Your solicitor can guide you through the Scottish offer process.
What If You Offer More Than the Property Valuation?
This is especially important in competitive property markets.
For example:
Property valuation: £200,000
Your offer: £215,000
A lender may calculate its mortgage using the property value it accepts rather than simply using your higher offer.
Therefore, you may need to fund the difference yourself.
A Mortgage in Principle for a certain amount does not mean the lender will finance any purchase price.
Mortgage in Principle for First-Time Buyers
A Mortgage in Principle can be particularly useful for first-time buyers.
It can help you understand:
How much you might be able to borrow
How your deposit affects your budget
Which price range may be realistic
However, leave room for fees and other buying costs.
Also, remember that the mortgage payment is only one cost of owning a home.
Can You Get a Mortgage in Principle Before Saving Your Full Deposit?
Possibly.
However, the lender will normally ask how much deposit you expect to provide.
If your deposit is not yet available, your position may change before the full application.
Therefore, make sure the figures you provide are realistic.
What If Your Mortgage in Principle Is Declined?
A decline does not automatically mean you cannot get a mortgage.
Different lenders have different rules.
However, avoid immediately making many more applications.
Instead, try to understand why the application was unsuccessful.
For example, the issue could involve:
- affordability
- credit history
- income
- existing debt
- lender criteria
Understanding the reason can help you decide what to do next.
Before Getting a Mortgage in Principle
It can help to gather some basic information first.
Have a clear idea of your:
Income
Deposit
Monthly debt payments
Credit card balances
Car finance
Regular financial commitments
Preferred property budget
Also, make sure the information you provide is accurate.
This can make the Mortgage in Principle more useful.
What Should You Do With the Result?
Use it as a guide.
For example, suppose the lender indicates that it may lend up to:
£200,000
You have a deposit of:
£30,000
You might initially think your budget is:
£230,000
However, you should then consider:
Buying costs
Monthly mortgage payments
Household bills
Emergency savings
You may decide that a lower property budget is more comfortable.
The Key Point
A Mortgage in Principle is a useful early step when planning to buy a home.
It gives you an idea of how much a lender may be willing to lend.
However, it is not a mortgage offer.
The lender still needs to check your finances in more detail. It also needs to approve the property.
Therefore:
Mortgage in Principle = an indication
Mortgage offer = formal lending decision
Use your Mortgage in Principle to help set a realistic property budget.
However, do not treat the maximum borrowing figure as a target.
The aim is not simply to borrow as much as possible. It is to find a mortgage and a home that fit comfortably within your finances.