Mortgage in principle

A mortgage in principle, also called an agreement in principle, is a lender's statement that it may lend a certain amount, based on the income, outgoings and credit history a buyer gives it. It is not a mortgage offer. The lender only commits to lending after a full application, document checks and a valuation of the property.

When a lender says a mortgage is agreed in principle, it means the details given so far fit its lending rules and its credit scoring. The figure is a guide to the price range a buyer can look at, not a promise that the lender will lend that amount on a particular home.

Getting a mortgage in principle usually takes a few minutes online, by phone or through a broker. The lender asks for personal details, address history, income, regular outgoings and existing debts, and the size of the deposit. Many lenders run a credit search at this stage, and the result can be given straight away or within a day.

Most banks and building societies offer an online mortgage in principle, and each uses its own affordability rules, so the amount can differ from one lender to the next. Using the figures a buyer expects to give on the full application, rather than rounded estimates, makes the result more reliable.

A broker can get a decision in principle from a lender that suits the case, which avoids applying to several lenders one after another. Firms that arrange residential cases can be compared on the residential mortgage brokers page.

Some lenders use a soft search for a mortgage in principle, which other lenders cannot see and which does not affect a credit score. Others use a hard search, which is recorded on the credit file. Asking which type of search will be used before applying helps avoid several hard searches in a short period.

A soft search can also give a less complete view than a hard search, so a lender may still run a full check when the real application goes in. Checking the credit file with the main credit reference agencies before applying lets a buyer correct mistakes early.

A mortgage can be declined after an agreement in principle when the full application shows something the quick check did not. Common reasons are income that cannot be proved as stated, a change in job or outgoings, new credit, problems on the credit file, or a property that the lender will not lend on after its valuation.

The valuation can also come in below the price, which reduces the loan the lender will make at the same loan-to-value. A buyer then needs a larger deposit, a lower price or a different lender. Keeping finances steady between the mortgage in principle and completion, without taking on new credit, reduces the risk of a late decline.

A mortgage in principle usually lasts for one to three months, depending on the lender, and can normally be renewed if a buyer has not found a property in time. Renewing may mean a fresh credit search. The amount can change on renewal if the lender's rules or the buyer's circumstances have changed in the meantime.

A mortgage in principle does not include the deposit, but the lender asks how much deposit the buyer has because it sets the loan-to-value. The deposit then has to be shown, with its source, on the full application.