Mortgage in principle: what it is and how to get one

What a mortgage in principle is

A mortgage in principle is a written statement from a lender of how much it might lend you, based on basic details of your income and outgoings and, usually, a credit check. It is not a mortgage offer and does not bind the lender. It gives you a budget to search with and shows sellers you are serious.

Buyers usually get one before they start viewing homes. GOV.UK's guide to buying a home, last updated in 2019, describes it as a written statement from a lender giving an estimate of what you can borrow, and points out that getting one from a lender does not mean you have to take your mortgage from that lender.

The lender decides for certain only later, after a full application. At that point it looks at evidence of your income, your spending and debts, and the home itself. The guide to how to get a mortgage follows the steps from that application to the offer.

Agreement in principle and decision in principle: the same thing

Lenders use different names for the same document. MoneyHelper, the government-backed money guidance service, says all of these mean the same thing:

Some lenders give the document a label of their own. Whatever the label, what matters is what the document says: the amount, the date it was issued, the date it runs out and the conditions attached.

What it proves and what it does not

The quickest way to understand the document is to set it beside the two steps that follow it.

How to get a mortgage in principle

You can ask a lender directly, often online, or a mortgage adviser can request one for you. A mortgage broker is one kind of adviser; a qualified, regulated mortgage adviser can tell you which lenders' criteria fit your circumstances before any credit check is run.

It helps to know beforehand roughly what your income could support. The how much you could borrow calculator gives an illustration from your income and outgoings, and the guide to mortgage affordability explains how lenders reach their own figure.

What you need

MoneyHelper lists the details a lender asks for at this stage:

• Your name and date of birth.
• Your address history, going back three years.
• Your income.
• Your monthly expenses.
• The size of your deposit.

For a joint purchase, the lender commonly asks for the same details for each of you. Lenders do not usually ask for payslips or bank statements at this stage, but the figures need to be ones your paperwork will support. Under the Financial Conduct Authority's rules a lender must obtain evidence of your income before it lends, and cannot accept your own word for it, so the full application tests the income you declared.

What it costs

Lenders and advisers set their own charges. Whether there is a fee for the document, and whether an adviser who arranges it charges one and when, are things to confirm at the start; the guide to mortgage fees lists the costs that come later.

Does a mortgage in principle affect your credit file?

It depends on the kind of search the lender runs, and lenders differ. Experian, one of the three main credit reference agencies, says some lenders use a soft search for an agreement in principle, which will not affect your score, while others may use a hard search, which can leave a mark on your credit report.

GOV.UK's guide makes the same distinction: a soft enquiry will not affect your credit score, but too many hard enquiries could. The guide to the credit score for a mortgage explains what a lender sees on the file.

A full mortgage application involves a hard search. Experian describes the effect of that search on your score as small and temporary.

How long a mortgage in principle lasts

The lender sets the period, and the date is on your document. MoneyHelper's guides describe it as typically valid for 30 to 90 days, and in one place as 60 to 90 days, so any figure quoted in general terms is only a guide.

If it runs out before you have found a home, you can ask for another. Your details are checked again, so the new figure can differ if your income, your debts or the lender's criteria have changed. If the lender uses a hard search, a renewal means another one on your file.

The document also goes out of date if your circumstances change. A new job, a new loan or a smaller deposit all change what a lender may be willing to lend, whatever the date on the page.

Can you be declined after a mortgage in principle?

Yes. The document rests on what you told the lender and a first look at your credit file. The full application looks much harder, and at things the first check never saw.

Common reasons an application fails after a yes in principle:

• The evidence does not match. Payslips, bank statements or accounts show a lower income or higher spending than the figures you gave.
• The credit file shows more on a full search. A missed payment, a default or an address that does not match the electoral register can change the decision.
• Your circumstances changed. You changed jobs, took on new borrowing or used some of your deposit.
• The home is the problem. The valuation comes in below the price, or the home falls outside the lender's criteria.
• The lender's criteria changed. Lenders adjust what they will lend on, and the full application is judged on the rules in force that day.

If a lender rejects a full application, FCA rules require it to tell you without delay. Where the decision rests on a search of a database, such as a credit reference agency's records, it must tell you the result and which database it used. The Information Commissioner's Office says you can ask an agency for your statutory credit report without paying a fee, and raise any inaccuracy with the agency.

MoneyHelper advises against simply trying another lender straight away, because each application shows on your credit file. A qualified, regulated mortgage adviser can look at why the application failed and whether another lender's criteria would fit.

When a new-build builder asks for one at reservation

Some builders ask to see an agreement in principle before they accept a reservation, or soon after. A builder takes the plot off the market when you reserve, so its sales team commonly wants evidence that you can fund the purchase. Some also ask you to speak to an adviser so that your budget can be confirmed.

Three things matter here.

You choose your own adviser

Under the New Homes Quality Code, a builder must make clear that you are free to choose your own advisers and do not have to use one it recommends. It must not suggest that a sale may not go ahead unless you use a particular adviser. If it will receive a reward for introducing one, it must disclose that in writing before you make any commitment. An agreement in principle arranged by your own adviser, or directly with a lender, is yours to show.

It does not cover the home

The document looks at you, not the property. Lenders set their own rules for new builds, and some ask for a bigger deposit on a new-build flat than on a house. Lenders also set their own policy on builders' incentives. None of that is tested until the full application. The guide to new-build mortgages explains each of these checks, and the incentives guide shows how offers are treated.

The clock starts at reservation

The Code requires every reservation agreement to include a cooling-off period of at least 14 days, during which the builder must refund the reservation fee in full. The date the agreement sets for exchange of contracts must be at least six weeks after you reserve, unless you ask for an earlier one. A full application, a valuation and the legal work all have to fit into that time, which is why buyers often gather their documents before they reserve. See reservation to completion for the full timetable.

If you are buying off plan, the document is likely to have run out before the home is finished. What then matters is the expiry date on the mortgage offer; the guide to buying off-plan covers that.

What to do once you have one

1. Note the amount, the expiry date and any conditions.
2. Bear in mind that new borrowing or a missed payment before the full application can change the lender's answer.
3. Set the figure beside the costs beyond the deposit, using the cash you need calculator.
4. See what the monthly payment would look like at different rates and terms with the mortgage calculator, as an illustration, not advice.
5. Gather the documents a full application needs, since the time between reservation and exchange can be short.

To see what lenders publish for a given price and deposit, the mortgage rates comparison sets out each lender's published rates with the monthly payment and total cost, each linked to the lender's own page. It shows information only, and does not tell you which mortgage is right for you.