Your Mortgage in Principle 101

Mortgage
Added on May 26th 2022

What is a mortgage in principle?

A mortgage in principle is an estimate from your bank or potential mortgage lender – in writing – that indicates how much you can borrow. You can show it to estate agents and vendors to assure them that any offer you make (as long as it’s within the estimate) is reliable. Sometimes a mortgage in principle is referred to as a decision in principle or a mortgage promise.

Getting a mortgage in principle

Obtaining a mortgage in principle is one of your first steps to working out how much you can borrow and your price range for properties.

It doesn’t take long for your lender to compile your mortgage in principle and it should be free of charge, with some lenders letting you apply online.

Your lender will as you for:

  • Your personal details, including your name, date of birth and address
  • Your address details for at least the last three years 
  • Information about your income, with some lenders taking benefits and savings into account
  • Information about your monthly expenditure, including any existing credit agreements

Your lender can then do the maths and issue you with a letter (or email) telling you how much it’s happy to lend you when you apply for a mortgage. To get your mortgage promise, you don’t need supporting evidence such as payslips, but you will need them when you make your full application.

You can get several mortgages in principle

If you’re a bit disappointed with the first lender you approach, or you see another lender with better interest rates, then you can get promises from other providers. However, you should find out if the lender does a hard or soft credit search, as too many hard searches on your file within a short period of time might make credit agencies think you’re desperate for money or credit. This won’t help when you come to apply for a mortgage.

Do I need a mortgage in principle to make an offer on a property?

You don’t need one, but having a mortgage in principle that covers the asking price will encourage the vendor and agent. You’ll look serious and “good for the money”.

More about that credit score

Your lender will ask your permission to conduct a credit search so you should ask at this point, if you don’t already know, if it’s a hard or soft check. If the lender calls it a “quotation check” then it’s almost certainly soft, but do make sure, as a hard check leaves a long-lasting footprint on your file which might concern some lenders. 

How long will my mortgage promise last?

Your mortgage in principle should last from 30 to 90 days, just to stay abreast with your circumstances. If yours “runs out” you simply get another one, but (again) make sure it involves a soft credit check. 

Can anything go wrong with a mortgage in principle?

If you give then lender all the right information then there’s not much that can go wrong. There’s no point inflating your income or understating your outgoings as you’ll have to provide proof when you come to apply for a mortgage. In reality, the only things that might go wrong are either not getting the amount you hoped for or being rejected outright. 

What’s a mortgage offer?

Your mortgage offer is the official confirmation that your lender will give you a mortgage for the property you want to buy. This may differ from the amount in principle. For example, the property’s survey might be less than ideal, in which case your lender may decide to reduce the mortgage amount a little.

You can make an offer on a property using your mortgage in principle, but to proceed, you’ll need your mortgage offer, which involves a full application with credit checks, underwriting and surveys.

 

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