What is a mortgage in principle and how long does it last?

A mortgage in principle, sometimes known as a mortgage agreement in principle, is an official estimate from a lender of how much you can afford to borrow on a mortgage. 

It can be very useful to have when you’re looking for your first home or a second property, as it shows the estate agent that you’re a serious buyer and that any offer you make is realistic. 

This guide explores what a mortgage in principle is, how it works and the benefits of getting one.

What is a mortgage in principle?

A mortgage in principle, which is also called an agreement in principle (AIP) or decision in principle (DIP), is a written indication from a bank or building society that states how much it may lend you.

It’s not binding, as a lender could still refuse you a mortgage on those terms, but it’s a useful indicator of what you can probably borrow, and estate agents take them seriously.

Why apply for a mortgage in principle?

You may be wondering why you should apply for an AIP instead of a mortgage straight away. The simple answer is that it’s quicker and less effort to get a mortgage in principle.

You can often get one in under an hour if there are no issues, and at most, it should take only a few days.

This frees you up to go house hunting and puts you in a strong position to make an offer on a home you want.

What’s the difference between a mortgage in principle and an offer?

A mortgage in principle isn’t a binding offer. 

While it means your preferred lender may be prepared to lend to you on certain terms, a thorough assessment of your finances must be done before you get a binding offer.

Do I need a mortgage in principle?

Having a mortgage in principle isn’t compulsory, but there are many good reasons to get one.

It gives you a clear idea of what you can afford, so you know your potential buying power and limits. Sometimes you’ll be able to afford a bigger home than you think or may need to adjust your expectations.

Some estate agents and sellers will only take your offer seriously if you have an AIP.

This is especially the case if you’re buying a home in Scotland as sometimes you may not get a viewing unless you have a mortgage in principle.

By showing you what you can realistically expect to borrow, a mortgage in principle reduces the risk that you’ll apply for a mortgage that’s too expensive and are rejected.

A mortgage rejection is bad to have on your credit file, as it can make your next application harder.

When should I get a mortgage in principle?

As soon as you’ve decided to start your journey onto the property ladder, apply for an AIP.

Aside from its practical uses, this will help you commit to the homebuying process. Knowing what you can afford, even in theory, will give you a huge confidence boost.

Use Unbiased’s mortgage calculator to find out how much you could borrow, what your monthly payments would be and your loan to value (LTV) ratio.

Having a mortgage in principle can save you time in terms of getting your offer accepted and speeding up the mortgage application process. 

Some lenders will give you a certificate when they offer a mortgage in principle, which you can show to estate agents. 

While this differs by lender, an AIP may include:  

• A statement that they’re willing to lend the amount applied for.
• The maximum sum they may be willing to lend.
• A statement that your mortgage in principle application has been accepted.

Will applying for a mortgage in principle affect my credit rating?

A mortgage in principle requires a credit check using a soft or hard search on your credit file, depending on the lender.

A soft search simply checks against your file without leaving a ‘footprint.’ As this isn’t visible to other lenders, it shouldn’t affect your credit score.

However, a hard search shows on your file as an application for credit.

While the hard search shouldn’t affect your credit rating, if many hard searches are made in a short space of time, lenders looking at your credit history for your mortgage application may think you’ve been rejected for credit several times and choose not to lend to you.

It’s worth finding out which lenders do soft searches and which use hard searches beforehand.

Remember, it’s wise to regularly check your credit file. It’ll give you time to sort any problems or add a note to your file if something from your financial past may affect your credit score.

How to get a mortgage in principle

You can apply for a mortgage in principle:

• Directly from a bank or building society
• Through a mortgage broker

It’s worth using a mortgage broker as they have access to a wider range of mortgages than you can find on the high street or on online.

You can also save time as your broker can find you the most competitive mortgage deal quickly.

This means that as soon as your mortgage offer is accepted, you can call up your broker and ask them to proceed with your application.

Can you get more than one mortgage in principle?

If you receive an AIP from a lender that is less than you expected, you can seek out other lenders to try and get an improved offer.

However, before looking for other potential offers, make sure you’re aware which lenders will perform a hard check on your credit score, as multiple hard credit checks can damage your score.

How much does a mortgage in principle cost?

It’s usually free to get a mortgage in principle from a mortgage lender or broker.

Usually, you’ll only be charged once your mortgage deal is secured (and sometimes not even then – find out more about how mortgage brokers charge).

What do you need to get a mortgage in principle?

Your mortgage broker or lender will ask you several questions, covering areas such as your income, spending, your job, credit history and the size of your deposit.

You’ll need the below information to hand:

• Income information (payslips and bank statements, or accounts if you’re self-employed)
• Records of your spending (credit card bills, utility bills, subscriptions)
• Any credit agreements
• Previous addresses, usually going back three years

It’s worth stressing that you’ll need these for your full mortgage application. You should ensure all the information is correct, or you may be rejected.

Learn more: Mortgage broker vs lender: what's the difference?

How reliable is a mortgage in principle?

A mortgage in principle is just what it sounds like – an indication of what a lender may, in principle, let you borrow.

It is conditional on you meeting the criteria for the AIP, and it is not a promise or guarantee.

Mortgage in principle: what can go wrong?

You can be declined when applying for a mortgage in principle, and this can harm your credit score.

There are many reasons for a rejection including:

• Inadequate income

• Income is perceived to be unreliable
• Your deposit is too small
• You have changed jobs too recently - or too often
• Your spending appears too extravagant or out of control
• You have too much debt
• Your credit score is poor
• Your application is incomplete or contains incorrect information
• You have been issued a bankruptcy order in the past six years
• You have less than three months of employment history
• You have received a County Court Judgement for debt that hasn’t been cleared in the last six years
• You have been refused a mortgage or had a home repossessed in the last six years

Even if your AIP application is accepted, your full mortgage application could be rejected later.

For example, if a lender only carried out a soft credit check, they may not have seen your full credit file. Other information may come to light in a hard credit search for a full mortgage application.

Nevertheless, this is a good opportunity to iron out any potential problems.

Can estate agents use a mortgage in principle to raise the price?

A property’s purchase price is only legally binding once contracts have been exchanged, so sellers can raise their price at any time, regardless of how much you can afford.

Still, you can always haggle the price down with the help of our homebuying tips.

Whether the maximum amount you’re able to afford is visible to the estate agent depends on the type of AIP certificate you’ve been given.

How long does a mortgage in principle last?

A mortgage in principle can last between 30 and 90 days, depending on the lender. If you haven’t found a property or had an offer accepted in this time, you may need to get another AIP.

Renewing it should be straightforward unless your circumstances or the economy have significantly changed.

In the current economy, it’s worth stressing that mortgage rates can change quickly, so it’s worth bearing this in mind when buying a property.

If any details you give when applying for an AIP change during the validity period, you must check with your mortgage broker or lender to ensure it is still valid, and renew the application if necessary.

If you found this guide useful you might also find our article on what to do when you move into a new house informative.

Hoping to start your homebuying journey?

Unbiased can quickly connect you with a qualified mortgage broker who’ll find the most competitive deal based on your unique circumstances.