What is a mortgage in principle?

Getting a mortgage in principle is your first step towards having a mortgage. Giving you an idea of how much you can borrow, you can confidently view properties within a certain budget and show sellers that you’re a serious buyer. So what is a mortgage in principle, how does it differ from a mortgage offer and will applying for one affect your credit rating?

What is a mortgage in principle?

A mortgage in principle provides an indication of how much you can borrow from a lender. This written estimate is also sometimes referred to as a decision in principle, an agreement in principle, an approval in principle, a mortgage promise or a lending certificate.

Lenders base the estimated loan amount on details you’ve provided about your finances as well as interest rates. This allows them to check your affordability for a mortgage. Having a mortgage in principle, therefore, helps you to budget for your purchase and it also shows estate agents and sellers that you’re serious about buying a property. This is especially helpful if you’re a first-time buyer as it provides reassurance that you’re in a position to buy.

How does a mortgage in principle differ from a mortgage offer?

It’s important to understand that a mortgage in principle isn’t the same as a mortgage offer. It’s an official estimate of what a lender is prepared to offer you but isn’t binding. A mortgage offer, on the other hand, is official confirmation that a lender is prepared to offer you a mortgage for a particular property.

A mortgage application is much more in-depth than applying for a mortgage in principle. It includes a full credit check, a thorough assessment of your affordability for the mortgage and a valuation of the property. Your financial situation may have changed since receiving the mortgage in principle or the lender’s terms or rates may have changed, affecting how much you can borrow for the mortgage.

When should you apply for a mortgage in principle?

Getting a mortgage in principle is a very quick process, unlike applying for a mortgage, which is a lengthy process. Therefore, it makes sense to apply for one as soon as you’re ready to start viewing properties.

Having one allows you to set a budget for the properties you want to look at and it shows estate agents that you’re committed to buying a property. It also puts you in a stronger position when offering on a property than prospective buyers without one. This can lead to your offer being accepted quicker by a seller and also speed up the mortgage application process.

Depending on the lender, a mortgage in principle usually lasts between 30 and 90 days. This means that if you haven’t had an offer accepted on a property by then, you’ll need to ask the lender to renew it. If your financial circumstances have changed since your first application, you may need to reapply for one instead.

What information is required for a mortgage in principle application?

To apply for a mortgage in principle, you need to provide:

  • Details of your income
  • Details of your monthly outgoings
  • Information about existing credit agreements
  • Your addresses for the previous 3 years

Will a mortgage in principle affect your credit score?

Lenders have to carry out a credit check when assessing your eligibility for a mortgage in principle. The type of credit check they carry out – a soft check or a hard check – determines whether or not your credit rating is affected.

A soft check won’t leave a footprint on your credit file. This means that other lenders won’t be able to see it and it won’t impact your credit rating.

A hard check, however, will leave a footprint on your credit file. This means that it will be visible to other lenders as an application for credit. Too many hard searches in a short space of time can negatively impact your credit rating. This is because lenders may view the number of searches as different attempts to apply for credit with subsequent rejections.

Therefore, it’s essential to check which lenders do soft checks and which ones do hard checks before applying for your mortgage in principle. It’s a good idea to check your credit report beforehand, allowing you to improve your credit rating if necessary.

Apply for your mortgage in principle

When you’re ready to apply for a mortgage in principle, just give us a call on 01322 907 000. Quick to arrange, it will give you a clear idea of your budget and put you in a better position when making an offer.

Once you’ve had an offer accepted, our mortgage brokers can begin the formal process for your mortgage application. With unrestricted access to the market, including exclusive broker-only deals, they can search for the best mortgage deal to suit your circumstances and meet your needs.