Mortgage agreements in principle: what they are and how to get one
What you need to know about a mortgage agreement in principle.
If you’re hoping to buy a house, it’s worth getting a mortgage agreement in principle. It gives you a good idea of what you can borrow to buy a house.
But how essential is it? And when should you get one?
We answer some common questions on mortgage agreements in principle.
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What is a mortgage agreement in principle?
Sometimes known as an ‘agreement in principle’, a ‘mortgage promise’ or a ‘decision in principle’. A mortgage in principle sets out what you can potentially borrow to buy a property.
As the name suggests, it’s ‘in principle’, so the offer the lender makes you isn’t set in stone. Once you’ve made an offer on a property you’ll have to apply for your mortgage.
How do I get a mortgage agreement in principle?
You can get a mortgage in principle from a broker, bank, or lender.
To get a mortgage in principle, you’ll need to give:
Date of birth
Details of your income and any bonuses
Three years of address history.
They’ll base the figure you can borrow on your income and consider your credit history.
Am I guaranteed to get a mortgage after getting an agreement in principle?
Usually you wouldn’t be rejected for a mortgage in principle - but your mortgage application might be refused.
As mentioned, the mortgage in principle isn’t set in stone. You could be turned down at the time of application if you don’t meet your lender’s borrowing criteria.
When should I get a mortgage agreement in principle?
Get your mortgage in principle before you start looking for a house.
By having an idea of what you can borrow, you know what property value to aim for.
How does a mortgage agreement in principle help me?
As well as giving you an idea of what you can afford, a mortgage in principle could make you more appealing to sellers.
After all, you’re in a better position to make an offer if you have a decent idea of what you can borrow.
Can I get a mortgage agreement in principle if I’ve had money problems in the past?
You should be able to get a mortgage agreement in principle if you've had financial issues in the past.
Having one can be reassuring if your credit history isn’t great - it can give you peace of mind about how much you can potentially borrow.
Your credit history might impact the amount you can borrow and the rate of interest you pay though. This’ll be reflected in the mortgage agreement in principle.
It might also have an impact when you come to apply for your mortgage.
A lender may decide not to lend to you if:
You’ve been bankrupt in the last 6 years
You’ve had a court judgement for a debt you haven’t repaid for 6 years
You’ve had a home repossessed in the last 6 years
You’ve been refused a mortgage in the last 6 years.
Some lenders also look at your unemployment history too.
What else should I think about when I get a mortgage agreement in principle?
Ask your lender what sort of credit check they’ll do.
Some will do a hard credit check when they see how much you can borrow. This will appear on your credit report.
If you’ve run one or two mortgage agreements in principle it shouldn’t matter too much. But alarm bells might start ringing for lenders if you go over that.
Other lenders might do a soft search, which won’t show up on your credit report.
Check with your lender or broker to see what type of credit checks they do.
Another thing to bear in mind: buying a house is a long process. So, by the time you’re ready to buy your house, the details the lender used to work out your mortgage in principle might have changed.
Some banks have handy calculators that give you a rough idea on what you can borrow. It’s not a mortgage agreement in principle, more of a general idea of what you can borrow. But it might help you narrow down mortgage deals.