What is a mortgage in principle?

When looking to buy a new home or taking that first step onto the property ladder, sorting your finances is perhaps the most important part of the process. The last thing anyone wants is to see the home of their dreams, make and offer, start the buying process and then realise that, for whatever reason, they can’t afford it or can’t get a mortgage on the property. This is where a mortgage in principle comes in to play, but what is a mortgage in principle? How do you get one? and why are they useful? This guide will take you through everything you need to know.

What is a mortgage in Principle?

At its most basic form a mortgage in principle is a statement from a mortgage lender that, should you be able to prove everything you have told them, they will lend the sum given in the mortgage in principle letter. Essentially, they are saying “based on the information we have seen, we would be willing to lend you the following sum of money”. This then shows that you, at least in principle, will be able to afford the property you are looking at and that you are a serious buyer.

How do you get a Mortgage in Principle?

You can apply online, over the phone, in branch or through a mortgage advisor or an independent financial advisor (IFA). It can be useful to talk to an IFA or broker as they can do some initial calculations to see what you could afford and search the mortgage market for suitable deals, giving you a quick overview. Whichever route you choose, you will be asked to fill out a reasonably basic form with information such as:

• Personal details, e.g. your name, date of birth and address
• Historical address details
• Information about your income, employment status and/or earnings
• Information about your expenditure and existing credit agreements

When filling the forms out, be 100% honest as, when it comes to the full application, the lender will ask you to prove, with documents, everything you have claimed.

The process is then relatively quick and some lenders can give you a decision in minutes. At worst it will be a day or two.

Does a mortgage in principle mean I will get a mortgage?

In short, no it is not a guarantee that a mortgage will actually be offered once the full application goes in. This is quite rare, but if you can’t prove everything you have said or the mortgage market changes and the lender’s lending criteria changes then it can refuse to lend.

What are the advantages of a mortgage in Principle?

There are three main advantages of getting a mortgage in principle:

• You know what a lender is likely to lend and what you can afford. This will help enormously when looking for your new home
• You are much more certain that, when you have found the home you want, you are likely to get a mortgage
• It shows the seller of the property that you are serious and that you can afford their property. Making it more likely in a sellers’ market, that they will choose to sell their property to you rather than another buyer

When to get a mortgage in principle?

Ideally you want to get a mortgage in principle as soon as you can. It is often recommended to obtain a decision or mortgage in principle before you start looking for your new home.

The last thing anyone wants when looking to buy a new home is to be looking at properties that they can’t afford or to find and fall in love with a property and not be able to obtain the full amount of mortgage required. Getting a mortgage in principle is a great way of avoiding both of these situations and helping your purchase go through much more smoothly.