As soon as you start thinking about buying a house, you are likely to come across the concept of a mortgage in principle.
A mortgage in principle, or an Agreement in Principle, is a statement a bank or other mortgage provider produces to show how much they might be willing to lend a prospective homebuyer.
It does not commit the lender to provide that money, but gives the buyer an idea of what their budget will be. You still need to go through the full mortgage application process later.
How reliable is a mortgage in principle?
A bank or other lender can issue a mortgage in principle based on the information you provide them, estimating how much you could borrow and what your repayments would be. But this would all be based on what you yourself provide.
Agreement In Principles are normally only valid for 30 days (though some lenders offer slightly longer terms), which means any amount suggested is only as good as the information provided at the time.
“If the lender changes their affordability assessment – i.e., increases their variable rate – after the Agreement In Principle has been completed but before the full mortgage application has been submitted, this can result in a different lending amount,” notes Karen Noye, a mortgage expert at Quilter.
“Likewise, if an applicant’s financial situation changes this would also have an impact.”
How do I get approved for an agreement in principle?
Although it is not as thorough as a full mortgage application process, getting an Agreement In Principle still requires you to provide information about yourself and you can still be rejected based on what the lender knows about you.
The most important thing is to make sure you are asking for a loan that is affordable to you. Using a mortgage calculator can help you ensure you are asking for a realistic amount of money. Most banks including Barclays, Halifax, and HSBC have their own online calculators.
After that, provide as much information as you can. Costantinos Papanastasiou, director at Element Properties & Co., says that the key is “detail, detail… and more detail”.
“The more information the client provides the broker with, the more accurate the Agreement In Principle will be. Earnings are one aspect of the mortgage assessment, but lifestyle costs, outstanding loan amounts, the credit profile, property type, length of mortgage, retirement age etc all play a large role in borrowing levels and affordability.”
Should I secure multiple mortgages in principle?
The short answer is no, generally not. “Many lenders often do a soft credit search at the Agreement In Principle stage which does not impact on your credit score, but some lenders still do hard searches which can impact a homebuyer’s credit history,” explains Quilter’s Karen Noye.
“Multiple searches on a credit file can be a red flag to a potential lender and can result in lowering an individual’s credit score.”
You also only need one Agreement In Principle for your purposes of working out how much you can afford, as well as potentially speeding up the homebuying process by providing evidence to estate agents that you’re a serious buyer.