What Is a Mortgage in Principle – and Do I Need One?

What is a Mortgage in Principle?

A Mortgage in Principle is an initial indication from a mortgage lender of the amount they may be prepared to lend you.

To obtain one, you’ll normally provide information such as:

• Your income and employment status
• Your regular financial commitments
• Your proposed deposit
• Your credit history
• The approximate amount you would like to borrow

The lender will then carry out an initial assessment against its lending criteria and affordability requirements.

Depending on the lender, this may also involve a soft or hard credit search.

If successful, you’ll usually receive confirmation of the amount the lender may be prepared to lend.

Is a Mortgage in Principle the same as a mortgage offer?

No.

This is one of the most important things to understand.

A Mortgage in Principle is not a guarantee that you will receive a mortgage and it isn’t the same as a formal mortgage offer.

A full mortgage application involves a more detailed assessment. The lender may need to verify your income, review supporting documents, complete further credit and affordability checks and assess the property you want to buy.

Your circumstances also need to remain acceptable to the lender.

Think of a Mortgage in Principle as an early indication of what may be possible rather than final mortgage approval.

Do I need a Mortgage in Principle before viewing houses?

You don’t usually need a Mortgage in Principle simply to view a property, but having one before you start seriously house hunting can be very useful.

It can give you a clearer idea of how much you may be able to borrow and therefore the price range you should be looking within.

Estate agents may also ask whether you have a Mortgage in Principle when you make an offer on a property.

Having one can demonstrate that you’ve already taken some initial steps towards arranging the finance you’ll need for the purchase.

When should I get one?

Ideally, it makes sense to understand your mortgage position before you fall in love with a property.

Speaking to a mortgage adviser early can help establish:

• How much you may be able to borrow
• How much deposit you may need
• What your approximate monthly payments could look like
• Which lenders may be suitable for your circumstances
• Whether there are any potential issues worth addressing before you start making offers

That can give you a much more realistic budget when you begin searching for your new home.

Will a Mortgage in Principle affect my credit score?

It depends on the lender.

Some lenders carry out a soft credit search, which doesn’t leave the same visible footprint to other lenders as a hard search.

Others may perform a hard credit search, which is recorded on your credit file.

This is one reason why it can be worth understanding the lender’s process before submitting multiple applications.

A mortgage broker can consider your circumstances and lender criteria before deciding where it may be appropriate to obtain a Mortgage in Principle.

How long does a Mortgage in Principle last?

There isn’t one standard period because this varies between lenders.

A Mortgage in Principle will normally be valid for a limited amount of time. If it expires before you’ve found a property, it may be possible to obtain another one, subject to your circumstances and the lender’s criteria at that time.

Don’t worry if you’re at the very beginning of your property search — you don’t need to rush into buying simply because you’ve obtained one.

What if my circumstances change?

If something changes after you’ve received your Mortgage in Principle, it’s important to let your mortgage adviser know.

This could include:

• Changing jobs
• Becoming self-employed
• A change in income
• Taking out new credit
• Increasing existing borrowing
• Changes to your deposit
• Changes to your regular financial commitments

A lender’s initial decision was based on the information available at the time, so a significant change could affect how much you’re able to borrow or whether that particular lender remains suitable.

Does a Mortgage in Principle mean I should use that lender?

Not necessarily.

Obtaining a Mortgage in Principle from one lender doesn’t mean you have to take your eventual mortgage with them.

Once you’ve found a property, the mortgage market and your circumstances can be reviewed again before proceeding with a full application.

The most suitable mortgage at that point may be with the same lender — or there may be another option worth considering.

Can I get a Mortgage in Principle if I’m self-employed?

Yes. Being self-employed doesn’t prevent you from obtaining a Mortgage in Principle.

However, lenders can assess self-employed income differently.

For example, depending on your business structure and the lender involved, they may consider salary and dividends, taxable profits or, in some circumstances, salary plus a share of company net profits.

Having the right information available at the beginning can help establish which lenders may be appropriate for you.