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What is a mortgage in principle, and how can it help prospective buyers?


By The Orchard Practice

When applying for a mortgage, being well-prepared can make a huge difference. Although the mortgage application process can be tricky, doing the relevant research and preparing in advance can make the whole process go more smoothly.

One step some buyers choose to take before applying for a mortgage is to secure a mortgage in principle, also known as an “agreement in principle” (AIP).

You don’t need to have an AIP to apply for a mortgage, but you could find it highly beneficial to explore this option as you go through the process of securing your dream home.

Read on to find out what a “mortgage in principle” is, the aspects of your application it could affect, and some key benefits of securing one.

A mortgage in principle gives you an idea of your borrowing prospects

A mortgage in principle is not a mortgage offer, but it can provide valuable insight into the kind of home you might be able to afford.

If you are considering applying for a mortgage soon, you can secure an AIP from a bank or building society of your choice that will let you know the estimated amount you could be eligible to borrow.

Most mortgages in principle are available to apply for online and will involve entering your financial details into an online form. You may even be able to secure a mortgage in principle in around 15 minutes, and can usually download the document straight away.

5 things you need to know about getting a mortgage in principle

  1. A mortgage in principle could affect your credit report

Most AIPs involve a credit check, in which a lender reviews your credit rating and takes your financial history into account when deciding whether to offer you a mortgage in principle.

A lender will look at your credit file to ensure you have managed credit responsibly in the past.

As well as any previous loan or credit applications, the mortgage in principle application itself could show up on your credit report, meaning it may be visible to prospective mortgage lenders when they run the same checks.

To check whether your AIP application will affect your credit rating, you need to be sure whether the bank or building society will run a “soft” or “hard” credit check. A “soft” credit check won’t show up on your report, whereas a “hard” one will.

  1. You can get more than one mortgage in principle from different lenders

You can apply for more than one AIP, to get an idea of how different lenders may view you.

However, it could be beneficial to check whether the lenders providing your mortgages in principle are conducting “hard” credit searches. If they are, too many of these on your credit report could affect how mortgage lenders view your application. So, it could be wise to limit the number of AIPs you acquire.

  1. You don’t have to borrow from the same lender that provided your AIP

A mortgage in principle is not a mortgage offer. The lender is under no obligation to offer you a mortgage, and you are under no obligation to go any further with your search with that particular lender either.

So, even if a lender has provided you with a mortgage in principle, it does not mean you have to apply to that same lender when the time comes to secure a mortgage. Importantly, it also doesn’t guarantee you’ll get a mortgage when you come to apply.

  1. An AIP could improve your chances of getting a home

According to Homeowners Alliance, only 62% of buyers got an AIP before applying for a mortgage.

Although not all buyers get an AIP, having this document could be beneficial when it comes to searching for a home.

If you have an AIP it demonstrates to an estate agent – and potential sellers – that you’re in an excellent position to buy. This could mean they’re more likely to accept your offer as they see you as a credible buyer.

  1. Your mortgage in principle will not last forever

A mortgage in principle has an expiry date, usually three or six months. The bank or building society providing your AIP will let you know how long this particular agreement is valid for before you need to apply again.

So, it may be wise to time your mortgage in principle application with making your first property offer. This will avoid your AIP expiring before you’re ready to take this step.

A mortgage broker can help you apply for a mortgage in principle

Working with a mortgage expert can be highly constructive when it comes to acquiring a mortgage in principle. An experienced professional could help you feel more confident as you take this next step towards buying your dream home.

Please contact us if you’d like more information and support when applying for a mortgage in principle.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.