A Mortgage in Principle can also be referred to as a ‘Decision in Principle’, (DIP), Agreement in Principle (AIP) or a ‘mortgage promise’. I’ll use a mixture of these terms throughout this post.
A Mortgage in Principle is basically a statement from a lender to say they’ll lend you a certain amount towards your property purchase.
Once you’ve got a Decision in Principle, you can show this document to sellers to prove you’re in a good position financially to buy the property. This can be particularly helpful if the seller has received more than one offer and has to choose which buyer to sell the property to.
Should I get a Mortgage in Principle before I start house hunting?
You don’t have to have a Mortgage in Principle before you start house hunting, but if you’d like to really commit to the house hunting process, it’s probably worth getting one in place.
If you spot the house of your dreams but you don’t already have an Agreement in Principle to hand, there’s a risk you could lose out to a buyer a who’s one step ahead of you.
Getting a Mortgage in Principle can be a really satisfying achievement and can give you peace of mind that you’re in a position to buy.
It can also help you be realistic when it comes to which properties you can afford. There’s little point viewing properties worth £350,000 if you have a £35,000 deposit but your Mortgage in Principle says it’ll only lend you £240,000.
Once I get a Mortgage in Principle, does the lender legally have to give me a loan?
Frustratingly, lenders are under no obligation to actually go ahead and lend you the money you need, even if they agree to it with a Decision in Principle.
This means you could obtain a Mortgage in Principle, find the house you want, submit a formal application for the actual mortgage, and find that the lender has decided not to give you the loan.
Here are a few reasons this might happen:
- Your credit rating has changed since you obtained your Agreement in Principle
- You’ve lost your job or have recently moved to a different company
- You’ve become self-employed
- The Decision in Principle document has expired
This list isn’t exhaustive and there are dozens of reasons a lender may refuse to lend you the money.
Most Agreement in Principle documents will have an expiry date on them and if you leave it too late, you may have to request an extension or a brand new Mortgage in Principle.
Do I have to go ahead and accept the lender’s offer?
The good news is that you’re also under no obligation to go ahead and accept the lender’s offer.
This means that if you change your mind about buying a house or you get a better mortgage offer elsewhere, you can ditch the original Decision in Principle.
What happens if my Mortgage in Principle isn’t enough to buy the property I want?
If your Mortgage in Principle isn’t high enough to buy the property you want, you have a few options:
- Lower your expectations and start looking for properties you can afford
- Increase your deposit, if this is possible*
- Shop around for a different mortgage
*Of course, if you’re £100,000 short, this might not be a realistic exercise
If you select option 3, I recommend getting in touch with a mortgage broker (assuming you haven’t already). A mortgage broker will compare dozens and sometimes even hundreds of deals from across the market before selecting the best ones for you.
They’ll also take your financial circumstances into account and highlight the lenders most likely to approve your application and offer you the amount you need. I used the online mortgage broker Habito and have reviewed them here.
How many Agreements in Principle can I get at once?
Although you can technically have more than one Agreement in Principle at the same time, his doesn’t mean you should try to obtain as many as possible. This isn’t Pokemon and you don’t have to collect ’em all. In fact, too many Mortgage in Principles could harm your credit rating and make it difficult for you to proceed with the home buying process.
To learn more about buying your first home, take a look at Can’t Swing a Cat’s first time buyer blog section.
Will a Mortgage In Principle affect my credit rating?
Lenders tend to carry out a credit check when you apply for a mortgage in principle. Some lenders may make “soft searches” and others may make “hard searches”. A soft search records the credit check as an enquiry, whereas a hard search will mark that you’ve made an application for credit.
Too many hard searches on your credit report are what can prevent you from accessing other mortgages. This is because lenders will assume you’ve had difficulty repaying previous loans.
If you’re concerned, ask your mortgage broker or potential lenders whether a soft or hard search will be carried out when you apply for your Mortgage in Principle.
