Mortgage in Principle Explained: What It Is and What It Isn't

What is a mortgage in principle?

A mortgage in principle is a written estimate from a lender of how much it might lend you. It is based on a quick look at your income and, with some lenders, your credit file, and it gives a realistic idea of your budget before you start viewing homes.

You may see it called an agreement in principle (AIP) or a decision in principle (DIP). The terms are used interchangeably.

It is not a mortgage offer

A mortgage in principle does not commit the lender to lend. A lender can still refuse a full application, even if your finances look sound, if it is not comfortable with the property. Examples include homes without a working kitchen or bathroom, some high-rise flats and some former council properties.

A full mortgage offer, which comes later, is the firm one. It is secured against the property and is what you need in order to complete a purchase. MoneyHelper notes that it can be withdrawn if, for example, your income changes before completion.

What information is needed?

Requirements vary by lender, but typically include:

• name and date of birth;
• address history, often going back three years;
• income;
• monthly expenses;
• the size of your deposit.

The later full application asks you to prove identity and income, which can mean up to six months of bank statements. Self-employed applicants are usually asked for two or three years of tax returns and accounts, as described in mortgages explained.

Will it affect my credit score?

The lender runs a credit check on the information you give. Some use a soft check, which leaves no visible mark on your file. Others use a hard check, which does. Several hard checks in a short period can hurt a credit rating, so it is worth asking which type is used before applying, and avoiding applying to many lenders at once.

How long does it last?

MoneyHelper says a mortgage in principle will typically be valid for 30 to 90 days, depending on the lender. If it runs out before you have found a property, you can usually get a new one.

What is it useful for?

• Seeing roughly what you could borrow, and whether a price range is realistic.
• Showing an estate agent you are a serious buyer. It is not a legal requirement to make an offer, but agents in a busy market may ask to see one.
• Starting to understand the deposit and monthly payment you would be working with.

What happens next?

1. You find a property and make an offer.
2. You make a full mortgage application and provide your evidence.
3. The lender arranges a valuation. The basic version is usually paid for by the lender, while upgraded surveys cost extra, and MoneyHelper suggests budgeting £150 to £800.
4. If approved, you receive a mortgage offer, usually valid for around six months.

Questions worth asking

• Does this lender use a soft or hard credit check?
• How long is the agreement valid?
• What would change the figure at full application?
• Is there a fee, from a lender or a broker, for providing it?