What is a mortgage in principle?
A mortgage decision in principle is generated by a lender based on initial information provided by, or for, a mortgage applicant.
For the avoidance of doubt a mortgage offer in principle can also be known as:
- decision in principle
- agreement in principle
- mortgage agreement in principle
Is it important to get a mortgage agreement in principle?
When purchasing a property through an estate agent, the majority of agents will want to confirm that you are in a financial position to proceed with the purchase. One of the ways they do this is by checking to see if you have a mortgage pre agreed. In effect they like to see that you have a mortgage agreement in principle. For this reason having an agreement in principle will strengthen your case when you place an offer on a new purchase.
In our view there is little value in arranging a decision in principle until you have identified a suitable property on which you seek to offer. Many lenders and brokers suggest and arrange a mortgage agreement in principle as a matter of process regardless of the applicant’s situation or timescales. The problem with that approach is that unnecessary credit searches can be put on your credit file.
What happens if I fail to get an agreement in principle?
If you are declined for a mortgage in principle the decline will be from the specific lender concerned. There will be a reason for it which may or may not be able to be overturned.
Some of the common reasons for a failed decision in principle are:
- Applicant(s) not meeting credit score
- Lender has difficulty identifying the applicant to make the decision (aliases, missing middle names, and spelling issues)
- Lender has difficulty with the applicant(s) address history (addressing errors)
- Applicant(s) do not meet affordability for requested lending
- An aspect of the of Applicant(s) situation does not meet criteria (for example Help to Buy purchaser that is not a first-time buyer)
What you can do to turn a failed decision in principle to a pass:
- The first thing to assess is if an error has been made in keying or providing information.
- Names misspelt, or middle names missing, and address or postcode areas can easily be rectified.
- Where an applicant has not met credit score it may be possible to appeal the decision.
- Commonly applicants may reduce their lending requirement to slightly decrease their loan to value which may then turn a ‘fail’ to a ‘pass’.
Finally, it is important to note that a failed mortgage in principle application from one lender does not mean you cannot obtain one from another. Before you attempt a second application however, ensure that you understand the reason for the initial failure.
What is the best way to obtain a mortgage offer in principle?
A decision in principle needs to come from a lender, this means you as the applicant need to either approach the lender direct, or engage a broker to do it on your behalf.
What is the advantage of using a mortgage broker to obtain a decision in principle?
An experienced mortgage broker will ensure that they fully understand your situation before applying for a mortgage agreement in principle on your behalf. They will only approach lenders that they believe will accept your application. They also best placed to resolve the situation should the initial result be a fail.
A good broker means your mortgage offer in principle is secured right, first time.
When is a mortgage agreement in principle not a true decision in principle?
Some mortgage brokers promote a service which they call an ‘agreement in principle’ but is in fact merely an affordability check, and possibly a quick look through the credit file with no search carried out by any lender. This is not a decision in principle and carries no weight with any lender.
How reliable is a mortgage in principle?
A true mortgage agreement in principle with most lenders can be relied on within certain parameters.
What the lender issuing the decision in principle is effectively saying, is that they have checked the credit file and the information outlined and based on that, they would be prepared to offer the mortgage applicants a mortgage of up to £xxxxx.
This means that the applicant with the agreement in principle can expect to not have any difficulties with credit scoring or affordability on a full mortgage application. The supporting information provided by the applicant would need of course to support the information set out in the agreement in principle stage. Finally, the security property would need to be assessed as suitable to act as collateral on the lending as assessment of the security is not part of the mortgage in principle stage.
How much does it cost to obtain a mortgage in principle?
Lenders and Brokers do not charge to produce a mortgage offer in principle.
Can I get a mortgage agreement in principle for a buy to let mortgage?
Yes, mortgage agreements in principle are available in the buy to let mortgage market in the same way as in the residential mortgage market.
Can I apply for a mortgage without first having a mortgage decision in principle?
Yes you can, you do not need a mortgage offer in principle in order to make a full mortgage application. Most lenders have application processes that start with a decision in principle stage. Therefore if you make a full mortgage application without having a decision principle first, the decision principle would simply be part of the application route.
What is a decision in principle with a soft footprint/soft search?
A true decision in principle will involve a check of the credit file of the applicant(s). This check on the credit file may be registered on the file and visible to all file viewers (a hard search), or registered on the file yet only visible to the applicant and the lender doing the search (soft search).
Which lenders run a mortgage in principle with a soft footprint/soft search?
Lenders that run a ‘soft footprint’ mortgage offer in principle include:
- Accord mortgage decision in principle
- Halifax agreement in principle
- Kensington Mortgage
- Kent Reliance
- Leeds Building Society
- Nat West mortgage in principle
- Precise Mortgages
- Santander agreement in principle
- Scottish Windows Bank agreement in principle
- The Mortgage Lender
Do I need to ensure I use a Lender with a soft footprint on decision in principle
No you do not. If you handle your mortgage application correctly you need only approach and apply to a single lender (the best one for your circumstances). You will then make a single application and whether or not the lender runs a soft or hard search at decision in principle stage will not be important. All Lenders will run a hard search before you complete your full mortgage application.
Many lenders and brokers may encourage you to run a soft search as “it doesn’t cause any harm to your credit file”. We believe that the right mortgage process will not involve a credit search and mortgage in principle just to ‘test the waters’.
Can I apply for a mortgage offer in principle myself online?
Many lenders offer an online mortgage in principle decision. You can key in your details to the online form and get a result swiftly. However, if you get a pass you cannot be sure that there will not lay to be a problem
due to you entering information accurately. If you get a fail, you have no way of knowing what the problem was and how you can address it. Errors in completing online forms to lenders may cause complications later in the process with either the same are or another.
With our mortgage offer in principle service we gather the information we need to get your decision in principle, but before you put your details to any lender we fully assess your situation and let you know the best lender for your circumstances and an idea of the terms you can expect.
Only then will we ask you to give us your specific permission to run a credit search with the lender.
We do not run decisions in principle or credit searches with any lender without your prior permission.
What I need to provide to get a mortgage offer in principle?
If you are interacting with the lender or dealing with a broker you can expect to have to provide.
- A copy of your current credit file (details on how to obtain your credit file are outlined here)
- Proof of income
- Copy of Bank Statements