How Reliable Is A Mortgage In Principle?

The mortgage application process can be a bit of a nail-biter. With all the form filling, back-and-forths, credit checks, and waiting around, how do you know if you’re going to be successful?

The truth is, you don’t know if your mortgage application will be successful until your lender tells you either yes or no. But that doesn’t mean you can’t get an early idea of what you can afford to borrow before you apply.

Enter: the mortgage in principle. It’s not a guarantee that you’ll get a mortgage, but it will give you a bit more certainty about what you can borrow, before you commit to a full mortgage application.

Let’s dig into the mortgage in principle (MIP) in more detail.

What is a mortgage in principle?

A mortgage in principle is a certificate from a lender or broker that shows how much you can, in principle, afford to borrow.

Here, “in principle” means the decision is made based on the information you’ve given them at the time and isn’t legally binding in any way.

It’s helpful to get a mortgage in principle early on in your property search as it gives you an idea of your budget. That way, you won’t get your heart set on any properties that are too expensive. It also shows sellers and estate agents that you’re serious about buying and can afford to do it.

Heads up: A mortgage in principle is different to an agreement in principle (AIP). An agreement in principle shows you how much a lender would be willing to lend you for a specific property. We’ll discuss the differences between these two agreements and how reliable they are below.

How reliable is a mortgage in principle?

A mortgage in principle is only as reliable as the information you provide your lender or broker to get it. Because there’s often no credit check involved, an MIP can only really be considered a good indication of what a lender might be willing to lend you based on your current circumstances. It’s not a commitment to give you a mortgage of the same value later.

The decision is based on a few simple pieces of information:

Your income
A few broad estimates about what you spend each month
The amount of money you have in savings
The amount of money you want to use for a deposit
The approximate cost of the property you’d like to buy
A soft credit check (depending on where you’re getting your MIP – when you get an MIP from Habito, there’s no credit check!)

Why isn’t a mortgage in principle a guarantee of a mortgage offer?

When you apply for an MIP, there aren’t any in-depth financial checks. Those will come later. Also, your MIP isn’t linked to any specific property. Your lender will want to do some checks on any property, before they agree to lend you a mortgage for it.

When these checks are finally carried out, it could reveal some problems that cause the lender to refuse your application and withdraw the mortgage in principle they’d previously offered. This could be for a number of reasons:

You fail further mortgage availability checks
Your credit score drops
You need a bigger mortgage than the amount offered in the mortgage in principle
An employment change that the lender doesn’t accept, like a change from a permanent to a temporary contract
You’re buying a property with non-standard construction
You’re self-employed and can’t produce records proving your income
Concerns over your right to reside in the UK
You experience any other significant financial changes
You were dishonest during your mortgage in principle application
You have a County Court Judgement

How does an MIP compare to an agreement in principle?

While a mortgage in principle gives you an idea of your borrowing power, an agreement in principle (AIP) goes one step further.

An agreement in principle gives you a more accurate idea of whether you’ll be able to afford the property you’re interested in – and it gives the seller confidence that you’re serious about buying it.

It also gives you a more accurate idea of how much of a mortgage you might be able to secure, because it will ask you for the same financial information that you need for a full application.

However, you should know that an agreement in principle can still be withdrawn by a lender for the same reasons as a mortgage in principle, and getting an AIP doesn’t mean the lender has agreed to offer you a mortgage of that amount.

How long does a mortgage in principle last?

There isn’t a time limit on a mortgage in principle. But the amount an MIP says you can borrow is based on your circumstances when you applied. So if anything changes, your mortgage in principle won’t be a reliable measure of your ability to get a mortgage.

If your circumstances have changed, you can just apply for a new mortgage in principle. Usually, this will only involve a soft credit check (or no credit check at all).

A note on credit checks, since many mortgage brokers and lenders use the term “mortgage in principle” to refer to an “agreement in principle”. Since an AIP is a more in-depth exploration of your finances, it could involve a hard credit check. Multiple hard searches can make it look like you’ve been declined for a loan or credit card several times in quick succession, which can harm your credit rating and affect your ability to get a mortgage later on.

Should you get a mortgage in principle? And where do you get one?

It’s definitely a good idea to get a mortgage in principle – especially when you’re first starting out on your property search. Just be as honest and detailed as possible in your application, keep an eye on any changes in your circumstances, and be aware that this agreement doesn’t mean the lender who offered it will give you a mortgage later.

And guess what? It’s easy to get a mortgage in principle from Habito. We’ll just ask you for some information about: