Mortgage in Principle
The mortgage application process can be complicated at times. By nature, borrowing a large amount of money on a long-term basis from a lender will require additional steps to offset any risks. In many cases, mortgages may have stringent eligibility criteria and require verification of your earnings, identity and address.
A mortgage in principle is essential to build seller trust and get a clear picture of your offer.
This guide outlines what it is and why you need it, so you can make your journey to securing finance a little bit easier
What is a Mortgage in Principle?
A mortgage in principle is a theoretical, no-obligation mortgage offer. A provider gives you this document to take to the seller of your property. It proves you can afford the asking price you’ve negotiated.
This can also be called an agreement in principle (the mortgage is the agreement, not the loan itself) or AIP.
A mortgage in principle is also useful for you. It offers more details and information on what you’ll be repaying and the total sum you can borrow. This is essential for making smart financial decisions.
Things you Need to Know About An AIP
Unlike a mortgage application, getting a mortgage in principle will not affect your credit score. However, you will still be required to share financial information. This lets your provider make an educated estimate of what they may lend you.
A mortgage in principle does not guarantee you an offer, however. Your provider is still able to reject an application on the terms outlined in the mortgage in principle.
Why Do You Need a Mortgage in Principle?
You need a mortgage in principle because it lets you approach a seller, and helps you understand the costs.
During the sale negotiations, a property’s owner will want to ensure you can afford your offer. This reduces their risk and allows their solicitors to proceed. No matter how honest you are, sellers are not going to take you at your word that you have £100,000s for them.
An AIP gives you a clear picture of the kind of properties you can afford. It is important to confirm your AIP so that you can proceed with buying property.
Mortgage in principle applications also have the same factors outlined in our recent article – what is a mortgage? – including:
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The amount of deposit you’re able to pay
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The intended duration of the mortgage
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Your income – and duration of accounts
Each specific calculation is at the discretion of the provider. This means you should shop around to get the best deal on your mortgage. Expect to put in serious time; the difference between good and bad mortgages could be years of your life and £10,000s.
Some are more in-depth and will typically provide a more accurate report. These take considerably more time and personal details. Meanwhile, more ‘lightweight’ mortgage in principle calculations have a wider margin of error.
There are many factors that could affect your mortgage rates which may not be calculated. Make sure the provider’s timeline for a mortgage in principle is the same as yours.
What Do I Need to Get a Mortgage in Principle
To get a mortgage in principle, you will need:
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Your key personal details – name, date of birth, and current address
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Your location for the past 3 years
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Financial information on your monthly income and spending
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Information about your other credit and debt commitments
This lets the lender determine how much they’re willing to give you. The more accurate these are, the more accurate the AIP.
Don't attempt to change details to get a better mortgage in principle. This could lead to your official mortgage offer being rejected. You will have to provide official documents during the application process, so the provider will find out your real situation.
Mortgage in Principle FAQs
Does a Mortgage in Principle Affect My Credit Score?
No – a mortgage in principle will not affect your credit score. As you’re only providing general details, your credit file will not be accessed. This means your score won’t change.
This is why it’s so important to be honest and accurate with your information. You’re not using direct proof of credit score, income, or spending. Talk to your solicitor if you think you have any income or assets that would change your AIP.
Does a Mortgage in Principle Mean You Will Be Accepted?
No – a mortgage in principle doesn’t guarantee your application will be accepted. Each mortgage is a case-by-case decision. These are typically made by a real person reviewing your application and there are many factors.
A mortgage in principle can build confidence in your application, however. If your assets and income are very strong relative to the loan amount, an AIP can be close to the real offer. The stronger a bank’s trust in your position, the more accurate your AIP.
However, a provider is never under obligation to accept your application. No matter your situation, they reserve the right to reject your mortgage application.
A mortgage in principle is more like a ‘test run’ – and does not hold any real weight.
Does a Mortgage in Principle Require a Deposit?
No – a mortgage in principle will not require you to pay a deposit. However, it does require you to have funds in your bank to pay a provider.
You don’t actually have to make any payments at this stage. Later, your provider will require the deposit in order to release the funds in a mortgage offer.
The idea of the mortgage in principle is based around calculations made on the amount of deposit you are able to pay. It goes both ways:
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You’re not required to pay anything to the bank, only establish that you could
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You are not required to pay the maximum deposit if you have more funds available
This does not necessarily mean you will receive an offer. It also doesn’t confirm the funds outlined in an AIP – your provider may still change terms.
Think about an AIP like this: “if I have access to X funds, and I want to borrow Y amount, what would I pay per month?”.
It’s a discussion before the fact, letting you plan around the bank’s expectations.
How Long Does a Mortgage in Principle Last?
Your mortgage in principle or AIP is valid for 1-3 months. You have 30-90 days, depending on the provider, before it lapses.
This is usually plenty of time to contact your seller’s solicitors. Delays in this period can be a major problem, which is why it’s better to opt for a long-lasting AIP. Getting a 90-day document is generally a better choice, no matter your timeline.
Can You Buy Without a Mortgage in Principle
Yes – the mortgage in principle is not a legal necessity. However, you may struggle to find a seller who is willing to sell to you.
Sellers need to protect their interests during a sale. They don’t want to waste time and money with non-serious inquiries. Negotiating a sale without the bank’s AIP makes you a less desirable buyer. This is because seller trust depends on you following the established process.
Sellers simply don’t want to negotiate with people who may or may not have the money they’re offering. For every such case, the seller is wasting solicitor’s fees and extra time ‘off the market’, depending on your offer.
The best case for buying without a mortgage in principle is buying outright with cash. Otherwise, you should get an AIP.
How Long Does It Take to Get a Mortgage in Principle?
A mortgage in principle is often very fast – ranging from 15 minutes to 24 hours. This depends on the provider and how many details they’re calculating.
Most banks and other mortgage providers have detailed systems that ‘crunch the numbers’ for them very quickly.
A mortgage in principle is fast because it does not represent any reality. There is no real mortgage at this point. There’s no advanced paperwork or legal commitments made by either party.
Of course, this process may also be delayed – especially on Fridays or towards the end of the working day. Try to talk to your provider as early as possible for a same-day quote.
The main delay in AIPs is human error and communication. Be prepared with detailed, accurate information on yourself and your situation. Have your location history written out beforehand. Pull your bank statements and other records ahead of time.
Preparation is key to speeding up your AIP – even if you’re excited or nervous!
Final Thoughts: Using Your Mortgage in Principle
A mortgage in principle lets you make an effective bid on a home purchase. It is both an important step in the house-purchasing process and an essential part of your own financial plan.
The mortgage in principle exists to defeat these problems and make a mortgage simpler.
A mortgage in principle is both a logistical necessity and a practical one to make sure you’re making the right choice.
Click here to make sure you’re getting the right mortgage and AIP for your situation. Fair Mortgages offers a simple comparison system to take the confusion out of your first mortgage.