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What is a Mortgage in Principle, and do you need one?

The first thing to consider when you start to think about buying a house is how much you can afford to spend, or to put it another way – how much of a mortgage you can borrow.

Unfortunately, there’s no quick and easy way to work this out. You may have seen all the mortgage calculators online, but they only provide a very simple estimate to give you a starting point and the amount a lender will be prepared to lend is usually a lot different to what you see on the calculators.

To get a more clear and detailed estimate then you need to get a Mortgage in Principle which, depending on where you go to get it, can be a relatively quick process.

Also known as a Decision in Principle or an Agreement in Principle, a Mortgage in Principle is a simple document that tells you the amount a lender is willing to let you borrow. This amount is usually calculated based on a number of factors, including:

  • Your deposit amount
  • Your salary
  • Your outgoings

Therefore you need to provide this information to the lender first so they can assess your suitability for a mortgage.

A Mortgage in Principle isn’t legally binding, so the lender is under no obligation to proceed with a mortgage for that amount and it won’t be approved automatically if you decide to go ahead. There may a lot more checks to carry out and factors to consider before the lender is happy to approve your mortgage, such as your credit history and any current loan agreements you may have in place.

As lenders all tend to look at the same things when providing the Mortgage in Principle, you would think the amounts they say they are willing to lend would be the same. However, this is not always the case. Some lenders may put more weight on certain factors than others, for instance, which could result in different amounts being offered.

Do you need to get a Mortgage in Principle?

Although you don’t necessarily need to get one before looking at potential houses, a Mortgage in Principle is a good idea. Not only will it give you a good indication of how much you can spend on a house, it also shows sellers and estate agents that you have a deal ‘in principle’ and are in a position to buy the property.

Getting a Mortgage in Principle is a good idea – it doesn’t just indicate how much you can spend on a home, it also shows estate agents and sellers that ‘in principle’, you’re in a position to buy the property.

Being prepared means there’s less chance of delays when it comes to getting a mortgage, so you’re more likely to be looked upon favourably by the vendor and their representatives.

If there is quite a bit of competition for the property you want to buy, then you will find that having the estate agent on your side is a big benefit.

Getting a Mortgage in Principle is therefore a good head-start in the process of buying a house, and can make everything go a lot more smoothly.

Where to get a Mortgage in Principle

You can get a Mortgage in Principle from any mortgage lender or broker – just get in touch with them either online or in branch to kick-start the process. You will often have to go and meet someone to talk through your finances so they can do at least a ‘soft’ credit check on you (which means it doesn’t show up on your credit history).

Many people opt to get a Mortgage in Principle from the bank they currently bank with, as they are familiar with them and what they offer. While that is certainly not a bad idea, don’t be afraid to look into things in a bit more detail first and see who offers the best mortgage rates – although a Mortgage in Principle isn’t an acceptance, getting one from the lender you want to eventually use is just common sense really.

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