What is a mortgage in principle? Do you need one?

When you’re applying for a mortgage, your first step will be getting what’s known as a mortgage in principle. This provides an indication of how much you’ll be able to borrow and can be useful when searching for properties, as you’ll have a better idea of your budget and can show to sellers that you’re a serious buyer.

You may come across the terms decision or agreement in principle too, or even mortgage promise, but they’re all basically the same thing. But what exactly is a mortgage in principle, and do you really need one? Let’s take a look.

What is a mortgage in principle?

A mortgage in principle (MIP) is a statement from the lender that sets out how much they may be willing, in theory, to lend you for a mortgage. They’ll take your financial details and will run it through their systems to get an estimate of the maximum amount they could lend based on your current circumstances, giving a reliable indicator of your budget to help fuel your property search.

Note that while mortgage calculators can also be used for this purpose, mortgages in principle are more personalised, offering a more accurate idea of your potential mortgage amount. But they’re still just an estimate; the figure is based on a soft credit search and the lender won’t delve particularly deeply into your finances at this stage, so it’s important to not rely on it fully.

Is it the same as an offer?

No. Mortgages in principle are not binding, and the eventual amount you’re offered will be based on a far more thorough check of your finances, and there’s still the potential for your application to be rejected.

For this reason, although MIPs can be a reliable estimate of how much you can borrow, they’re not a guarantee. To get your own idea of how much you can borrow, try out our mortgage borrowing calculator.

Do you need a mortgage in principle?

You don’t technically need a mortgage in principle and they’re by no means compulsory, but it can certainly be helpful:

• Having one in place shows that you’re a serious buyer who can make a realistic offer on the property, and ultimately shows that you’re likely to be able to afford it, which can be useful for you to know as much as anyone else.
• You can be more confident in your buying power and may even be able to look for a more expensive property as a result, or it could help rein in your expectations so you’re not looking at homes that are unaffordable.
• It can give you the edge over other buyers, particularly if there’s a lot of interest in the property, as some estate agents may not take you seriously without one.
• It can be particularly helpful for first-time buyers who would otherwise have no proof of their ability to afford a mortgage.

You can ultimately be in a much stronger position if you’ve got an MIP in place, and you can be more confident that you’ll be able to afford the property that you’re searching for.

Can you view a house without a mortgage in principle?

Yes. If you’re at the really early stages of your property search you don’t legally need an MIP to view the property, or even to make an offer.

That said, it can add extra weight to any offer you do make, and you may find it difficult to have one accepted without one. (Note that in Scotland the rules can be slightly different and you may not get a viewing without an MIP.)

When should you get a mortgage in principle?

You’ll ideally want to get a mortgage in principle at the very start of the homebuying process, both so you can be confident that your borrowing expectations are realistic and also to show estate agents that you’re in a strong position to buy. However, as mentioned previously, you don’t have to get one – but if you want to make the process run as smoothly as possible it’s advisable to do so, and the earlier the better.

Having an MIP in place can speed up the process as you’ll be in a better position to get your offer accepted, and because you’ll have already provided a lot of financial details to the lender it can make the full application process quicker as well. This is why it’s best to start searching for the best mortgage rates as soon as you start thinking about buying a new home, as once you have the MIP in place it can propel your property search forward.

How long does a mortgage in principle last?

A mortgage in principle will typically last between 30 and 90 days, though the exact timeframe will depend on the lender. If you haven’t had an offer accepted on a property by the end of the validity period, you’ll likely need to apply for another MIP.

However, this should be fairly straightforward, provided none of your circumstances have changed and the mortgage market hasn’t changed significantly. If rates have gone up or down substantially in that time it can potentially have an impact on your new MIP, and so could any changing circumstances, such as a different income.

Note that if your circumstances change during the validity period, you may have to renew your application anyway (but you can check with the lender first to see if the MIP will still be valid based on your new details).

How to get a mortgage in principle

Here are the steps you need to take to get a mortgage in principle:

1. Research the market to find the best mortgage rates and identify the lender you want to approach, or use a broker to help do it for you.
2. Apply directly through the lender or via your broker.
3. Fill in any required forms and provide all necessary details.
4. Once the application is submitted the lender will carry out a soft credit check.
5. You’ll receive a decision from the lender.

It’s a quick process and can take as little as 15 minutes, but this can again depend on the lender. It can be quicker if you make sure to gather all the necessary information together in advance – you’ll need to provide your personal details, address history, income, overview of any debts, details of your spending and the size of your deposit. You shouldn’t need to provide too much evidence at this stage but it can be helpful to have it all to hand.

Do you need to pay for a mortgage in principle?

Not usually, but make sure to check with your lender or broker before you apply.

Do I have to show the estate agent my agreement in principle?

Not necessarily, but if you can show them and/or the sellers proof of your MIP, it can provide evidence of your ability to afford the property and could help push your offer through.

Does a mortgage in principle affect your credit score?

Because most lenders will run a soft credit check for a mortgage in principle, it shouldn’t affect your credit score as it won’t be recorded on your credit file. That said, it’s worth double-checking with the lender just to make sure.

If it’s a hard credit search it’ll leave a footprint on your file, which can result in a temporary dip to your score. It will also be visible to other lenders, which is why it isn’t recommended to apply for a lot of credit in the six months before your mortgage application, nor to keep applying for mortgages if you’re rejected, as this could indicate that you’re financially struggling.

How many mortgage in principles can you get?

You can theoretically get several different MIPs from different lenders, perhaps if your first one (or two) won’t offer as much as you hoped for or need for your property search. You can also get more than one from the same lender, perhaps if your first MIP expires or your circumstances change and you need to run the numbers again.

Ideally though you’ll only need one, and if you do need more, make sure that the lender doesn’t run a hard credit check, which could impact your chance of acceptance in future.

What happens after a mortgage in principle?

After you’ve been approved for a mortgage in principle you’ll normally get a written statement from your lender that you can show to estate agents as proof of your ability to afford the property. You’re then in a much stronger position to house-hunt, and will also have a solid idea of your overall budget so can search accordingly.

Once you’ve found your ideal property, you can put in an offer – and if accepted, you can start the process of applying for a full mortgage.

Can a mortgage be declined after an agreement in principle?

Yes. An agreement in principle is not legally binding, and it provides no guarantee that you’ll be accepted for a full mortgage afterwards.

This is because the lender will now perform a more thorough check of your finances, including a hard credit search, and it’ll need to see evidence of your income, expenditure and debt commitments. It’ll also need to perform a mortgage valuation to make sure the property is worth what you’re offering, and you’ll go through the full underwriting process to ensure you tick all the boxes.

As a result of their investigations, the lender will ideally approve your application and all should progress as normal. However, there’s no guarantee, and they may change the terms of their mortgage offer, they could reduce the amount they’re willing to lend, or they may decline your application altogether.

A few reasons it could be declined include:

• the property isn’t worth the price you’ve offered
• tour personal circumstances have changed since you applied for the MIP
• lending criteria or mortgage interest rates have changed
• the credit check raised some red flags (always try to improve your credit score in advance if you’re concerned).

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