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What is a Mortgage in Principle?

16/10/19

A mortgage in principle is a statement or certificate from a lender stating that they would ‘in principle’ lend you a certain amount.  Mortgage in principles may also be known as a Decision in Principle (DIP), mortgage promise or Agreement in Principle (AIP).

Mortgage in Principle

So, what’s the point of a mortgage in principle?  A mortgage in principle allows you to know with some certainty how much you are eligible to borrow and therefore what price property you can potentially buy.

Having a mortgage in principle allows you to show sellers that you will be able to afford to buy their property and that they can take your offer seriously.  Many estate agents insist on only accepting offers from potential buyers who have a mortgage in principle in place.

You can obtain a mortgage in principle at any stage of the mortgage application process.

There are, however, a couple of important points to bear in mind:

Firstly, just because you have a mortgage in principle, does not necessarily mean that you are guaranteed that mortgage.  Until the formal application of the mortgage has been finalised, the lender has the right to change or withdraw the offer.  The reasons this may happen might be a change in interest rates, your financial situation changing, or the mortgage deal just no longer being available (if you’ve left a long time to apply after receiving your mortgage in principle). 

Secondly, be aware that applying for a mortgage in principle might affect your credit rating.  For any lender to be able to consider you for a mortgage, they will need make credit checks.  Too many credit checks can negatively affect your credit rating as it suggests that you are having problems repaying your loans.  However, not all credit checks are created equal.  “Hard searches” show on your credit report that you have made an application for credit.  “Soft searches” show on your credit report as an enquiry.  It is always worth checking with the lender when applying for a mortgage in principle if they are going to carry out a soft or hard search.

Our advisers here at Mortgage Advice UK have access to over 90 lenders and 11,000 mortgage schemes.  They have the knowledge and experience to be able to recommend mortgages which you are most likely to be accepted for based on the information you provide for them.  They also know if the credit checks carried out in order for you to obtain your mortgage in principle will leave a hard or soft footprint on your credit rating.

If you are looking to buy a property, call one of our friendly and professional mortgage advisors.  They will be able to talk you through the process and help you agree a mortgage which is just right for you.