Do I Need a Mortgage in Principle to Make an Offer?

Getting a mortgage can be a daunting process especially if you have never obtained a mortgage before. 

You may have unanswered questions such as:

• Do I need a broker?
• How long will it take to get a mortgage?
• Why is my estate agent asking for a mortgage in principle?
• How much does it cost to get a mortgage?

The truth is, getting a mortgage in the UK can be a complicated process, and it can be highly stressful.

Getting a mortgage in principle is your first step towards getting a mortgage and in turn your dream home.

This guide breaks down frequently asked mortgage questions and tackles what a mortgage in principle is and when you need one.

What is a Mortgage in Principle?

A mortgage in principle goes by a few names and depending on who you approach to get your mortgage, you might encounter different terminology:

• Decision in Principle (DiP)
• Agreement in Principle (AiP)

Both terms above are used interchangeably with a mortgage in principle (MiP) so don’t be confused if one adviser uses a different expression they all mean the same thing

A mortgage in principle is a pre-qualification for a mortgage that lenders offer customers.

The mortgage in principle will tell you how much a lender is potentially prepared to offer you for a mortgage.

For example, you might approach Halifax who give you a mortgage in principle offering a loan of £300,000.

That means that subject to application, Halifax would lend you £300,000 to buy your property.

Do I Need a Mortgage in Principle?

The answer is no you may not need a mortgage in principle.

However, it is quite common for you to need one during the property search and mortgage process.

It is always an excellent idea to get a mortgage in principle as it will help you understand what type of product you’re going to be applying for and how much you can borrow from the lender.

What Can I Do with a Mortgage in Principle?

A mortgage in principle has several uses.

• Typically, estate agents will request a mortgage in principle if you want to make an offer on a property.
• It allows you to conduct your property search within your borrowing means.
• It helps you plan ahead for the mortgage application.

Let’s explore these three uses in a little more detail.

Estate Agents and Property Offers

If you’re looking to make an offer on a property, it is very common (although not always required) for an estate agent to ask you for a copy of your mortgage in principle.

This is so that they can see that the offer is genuine and that you potentially have the funds to complete the property purchase.

As far as an estate agent is concerned, they want people to complete property purchases as soon as possible and vet offers to ensure you’re in a position to buy the property.

Estate agents typically make a commission on their sales, so if they can’t view something tangible alongside an offer, they may reject the offer altogether.

This is because they don’t want to waste time and delay their payment any longer than is necessary.

In rare cases, an estate agent might not ask for a mortgage in principle.

This is very much the exception to the rule and estate agents that take offers in good faith are few and far between.

On the topic of estate agents, in rare cases, they may pressure you into using their in-house mortgage broker to process an Agreement in Principle.

This pressure is illegal and it is normally for monetary reasons as they earn commission from the referral to the mortgage broker.

Just know that you can use any mortgage broker of your choosing. 

We would recommend that you select a fee-free, whole-of-market mortgage brokerage with excellent reviews like Boon Brokers.

This will avoid payment of any unnecessary fees and any worry about whether a broker is selecting the most suitable product for you from the entire market. 

Conducting Your Property Search

If you have had an initial discussion with a mortgage broker and completed the fact find process, you will almost certainly have been surprised by the amount you can borrow.

• You might not be able to borrow as much as you expected
• You might be able to borrow more than you expected.

It is rare for customers to be able to predict exactly how much they can borrow before speaking to a mortgage adviser.

This is for several reasons but most commonly it is the common misconception that you can borrow exactly 4.5 times your annual salary.

The 4.5 times your annual salary is something that some lenders use as an estimate for affordability, but many lenders operate different maximums with some extending affordability up to 5 times your salary.

Salary multiples are only the initial phase of an affordability calculation however and you will find that existing outgoings, debts and financial commitments also play a role in your final borrowing amount.

Once you have the exact figure of the amount you can borrow from your mortgage in principle you will be able to narrow your search of properties to those that fit your budget.

It prevents you from shopping beyond your mortgage means or in some cases you might be pleasantly surprised and be able to buy a much more expensive property than you initially anticipated.

Without a mortgage in principle, conducting a property search is very much guesswork and if you’re able to make an offer on the property you will then need to source a mortgage that meets your initial guesses which can be problematic to say the least.

Forward Planning for Your Mortgage Application

When you get a mortgage in principle you will know which lender, you’re likely to apply to for your mortgage.

This means that you can ask your broker the following:

• What documentation is needed for the mortgage application
• Whether the lender has specific property requirements (such as construction type)
• How the lender wants your deposit sourced and evidenced.

Having this information in advance allows you to collate it all while you’re searching for a property. 

It means that once you have made an offer on the property, you are immediately ready to proceed with an application.

Mortgage applications can take a number of weeks, so having this information ready in advance can cut down the application time and get you into your home faster.

How Long Before Applying do I Need a Mortgage in Principle?

You should ideally look to get a mortgage in principle as soon as you’re ready to look at and make offers on properties.

Most lenders operate a maximum time frame of 3 months for a mortgage in principle to be considered valid.

If your property search takes longer than the lender’s maximum time frame then you can reapply for the mortgage in principle.

You should be aware that getting a mortgage in principle requires a credit check.

Most mortgage in principle credit checks are what’s known as soft searches.

Soft searches will give the lender the information they need about your credit score without marking or leaving an imprint on your credit file.

In rare cases, lenders may use a hard search which leaves a footprint on your credit file. You should make sure that if the lender is conducting a hard search that you don’t keep getting mortgage in principles.

This is because repeated hard searches can damage your credit score and make your application more difficult (or even decline altogether).

How to Get a Mortgage in Principle?

It is best to approach a whole of market mortgage broker to help get a mortgage in principle.

When you contact a mortgage broker, they will conduct a fact find which is a questionnaire about your finances and life in general.

The reason for this is to establish your financial standing, what commitments you have and where your deposit is being sourced from.

It will also take into account the location and type of property you’re looking to purchase as well as if you’re looking for a residential mortgage or buy to let.

Once this fact find is completed a broker has all the information required to find a product that fits your circumstances.

Brokers will look at several areas before making their recommendation including lenders that accept your desired property type, provide you with the loan you need and at the interest rate that makes it affordable.

If you’re happy with the recommendation a broker will often ask if you want to proceed to a mortgage in principle at this point.

They will outline whether the lender uses a hard or soft search for the mortgage in principle.

Agreeing to a mortgage in principle application will allow the broker to submit your details to the lender.

They will then conduct either a hard or soft credit search of your credit file. This application will result in one of three outcomes:

• Acceptance and the mortgage in principle certificate is emailed to you for your records.
• In some cases, a lender might decline a mortgage in principle. The most common reason for this is undeclared adverse credit or financial commitments. 
• Referral of the mortgage in principle. In rare cases, a lender might want additional information relating to a mortgage in principle and your broker might request more information from you.

Most mortgage in principle applications conducted by brokers should be accepted because the broker should have done sufficient due diligence on the case to submit an accurate application.

However, there may be circumstances outside of the broker’s control that results in a decline. 

As mentioned above, if the client has not declared all of their adverse credit or financial commitments, this may result in a decline.

This reiterates the importance of being totally transparent with your broker throughout the process to avoid any unnecessary declines.

Will Getting a Mortgage in Principle Guarantee My Mortgage?

No, unfortunately not. A mortgage in principle is just that, an offer in principle.

The difference between a full mortgage application and a mortgage in principle application is significant.

You will need to provide evidence to a lender when making an application that wouldn’t have been requested at the mortgage in principle stage.

If the evidence you provide on the application differs to the information provided at the mortgage in principle stage you could find that the maximum borrowing amount changes.

Lenders have strict criteria for mortgages that are not fully explored by underwriters until the full mortgage application stage.

A mortgage in principle should be used as an indication of what you can borrow with that lender as long as the information you provide on the application matches the mortgage in principle.

This is why having a good broker is so important.

They will look at the product requirements in detail BEFORE applying for a mortgage in principle so that it reduces the risk of surprises when you get to the application.

Remember, all mortgages are different and everyone has a unique personal circumstance.

As such mortgage applications are often complex and you might find that issues crop up even if the mortgage in principle application was accepted immediately. 

Lastly, if your credit score or financial situation changes from the time you got the mortgage in principle and the time you make your application, it is a good idea to discuss this with your broker before submitting for a mortgage.

This is because changes in circumstance is the most significant cause for problems between both submissions.

Conclusion

Having a mortgage in principle isn’t an absolute requirement but it is highly advisable.

It is a great idea to approach a broker to conduct a whole of market search to identify the most suitable lender and mortgage product for your requirements. 

Boon Brokers offers fee FREE, no obligation mortgage advice and can help you obtain a mortgage in principle.

Boon Brokers is a whole of market mortgage, insurance and equity release broker. If you’re looking to buy a property and want to take the first steps, get in contact with Boon Brokers today.