Mortgage in principle (decision in principle)

Before you find a home, most lenders will tell you how much money they are willing to lend you, called a mortgage or agreement in principle¹. It is a statement from a lender that says how much they are willing to lend, and it is used to show that you can afford the home you want to purchase². You will also see it called a decision in principle, or DIP for short³.

The figure is an indication, not a promise. An agreement in principle is not a mortgage offer or an official confirmation that you have a mortgage⁴. What it does is give you a realistic price range to shop within, and evidence for estate agents and sellers that a lender has looked at your circumstances and seen nothing that rules you out.

This page explains what a mortgage in principle covers, what it costs, whether the credit check leaves a mark on your file, what you need to provide, how long it lasts, and what can make one decline or lapse before you get anywhere near a formal offer.

What a mortgage in principle tells you

A mortgage in principle answers the first question every buyer has: how much can I borrow? Most lenders will tell you how much money they are willing to lend you, called a mortgage or agreement in principle¹. Shelter Scotland describes it as a statement from a lender that says how much they are willing to lend you, used to show that you can afford the home you want to purchase².

The figure is normally built from what you tell the lender about your income and spending, together with a credit check. As a rough yardstick, mortgage lenders will typically offer a mortgage worth four and a half times your salary, though some borrowers can qualify for more⁸. The full picture of what shapes a borrowing limit is covered in how much can I borrow for a mortgage?, and the size of your deposit matters too, because it sets the loan to value the lender is being asked to take on.

The indication is useful at three moments. First, before you start viewing, because it stops you wasting time on homes you cannot finance. Second, when you make an offer, because estate agents often ask to see one⁴. Third, if your circumstances are unusual, because it tells you early whether a lender sees a problem. If you have had credit problems in the past, or you have a limited credit history and are not sure what a bank or building society might lend to you, an agreement in principle could give you added reassurance around your borrowing prospects⁴.

A mortgage in principle is not a mortgage offer

The single most important thing to understand is the limit of what you are holding. An agreement in principle is not a mortgage offer or an official confirmation that you have a mortgage⁴. It does not bind the lender to anything, and it does not bind you either.

The formal mortgage offer only comes later, after an offer on a property has been accepted and a full application made. At that stage the lender verifies the documents, assesses affordability in detail under the rules in the FCA's Mortgage Conduct of Business sourcebook, and arranges a valuation or survey of the property itself. Generally, a mortgage offer is received within four weeks of applying⁵. A mortgage application typically takes two to four weeks to process, and the time varies with the lender's workload and the applicant's circumstances⁹.

Because the decision in principle is based on unverified information, a lender can withdraw or revise it at any point, and a full application can still be declined even where a decision in principle was issued. The property is part of the reason: the lender has not seen it when it gives the indication, and a valuation that comes in lower than the price agreed can change what the lender will advance. The process from indication to formal offer is covered in how to apply for a mortgage, and the wider mechanics are in how a mortgage works.

Cost and obligation: no commitment to borrow

A mortgage in principle does not commit you to borrow anything. Advisory firms make this explicit: Mortgage Advice Bureau states you can just get a Decision in Principle from its advisers, with no obligation to get a mortgage⁹. Registering with estate agents is free and will not create any obligation on your part⁷.

Lenders do not charge a fee for issuing a decision in principle. The costs in the house buying process come later: arrangement fees, valuation fees and legal costs, which are covered in mortgage fees and charges. The decision in principle stage is the one part of the process that is genuinely free, which is why there is no financial risk in getting one early.

The absence of obligation cuts both ways, and it is worth being clear about it. You can walk away from a lender that has given you an indication without owing anything, and the lender can equally decide, on fuller information, not to lend at all. Treat the figure as a working assumption for your budget rather than a secured amount, and keep a margin below it for the costs of buying, moving and furnishing a home.

Soft or hard search: the effect on your credit file

Getting a decision in principle usually involves a credit check³. The question every buyer asks is whether that check damages their credit score, and the honest answer is: it depends on which type of check the lender runs.

If you are applying for a mortgage in principle, lenders may be able to conduct a soft check, which does not show up on your record⁶. A soft check gives the lender enough to make its indication without leaving a visible trace for other lenders to see. The same principle applies across credit: credit card providers offer a soft search eligibility check which does not impact your credit score, whereas a full application leaves a mark on your credit file¹⁰.

The reason the distinction matters is the effect of accumulated searches. If there are lots of searches on a file, this can make it harder to take out credit or affect the deals a lender is willing to offer¹¹. A string of full searches in a short period can look to a lender as though the applicant is urgently seeking credit, which is why independent guidance suggests getting a decision in principle at the point of formally applying for the mortgage, or where an estate agent asks for one to check a buyer is credible⁵.

Because practice varies between lenders, the practical approach is to ask before you apply which type of search will be run. A lender's website or a broker can tell you. If several lenders you are considering all run full searches, spacing the applications or settling on one lender first limits the marks on your file. The wider picture of how your file is built and what lenders see in it is covered in credit scores and credit reports.

What you need to apply: income, outgoings and address history

The information a lender asks for at the decision in principle stage is modest. It covers the applicant's name, date of birth, three years of address history, and income and expenditure⁴.

In practice that means:

• Your name and date of birth, as they appear on official documents
• Three years of address history, with no gaps
• Your income, including salary and any other regular income
• Your expenditure, meaning your regular commitments such as loans, credit card repayments and household bills⁴

All potential borrowing is subject to affordability checks and credit status, and the outcome depends on your regular commitments, how you are paid, whether you are self-employed, your deposit, your age and whether borrowing extends beyond your retirement date, as well as each lender's own criteria¹². Proof of address comes later in the full application: you will need two documents such as a bank statement, utility bill, council tax bill or credit card statement, dated within the last three months³.

Some schemes ask for more at an early stage. Scotland's First Homes Fund, for example, requires details of your solicitor, a mortgage decision in principle, evidence that your mortgage payments will not be more than 45% of your net income, and a copy of the home report for open market sales or a reservation agreement for new build homes¹³. The mortgage for that scheme must be capital repayment and not interest-only¹⁴. If you are buying through a scheme rather than on the open market, check its own evidence requirements before you start.

How to get one: from a lender or through a broker

There are two routes, and you will either need to approach a mortgage lender directly or go via a mortgage broker⁴.

Direct with a lender. Most banks and building societies let you get a decision in principle online, by phone or in a branch. You give the information described above, the lender runs its check, and you usually have an answer quickly. The limitation is that you see only that one lender's answer.

Through a broker. A broker can look across the market, or the part of it it deals with, and can tell you which lenders are likely to accept your circumstances before any search is made. Some lenders only accept applications through brokers, which is covered in broker-only mortgage lenders. Advisory firms such as Mortgage Advice Bureau issue decisions in principle with no obligation to proceed⁹.

The choice between the routes is covered in mortgage advice: brokers, advisers and applying direct. In short, a broker tends to help most where your circumstances are not straightforward: self-employment, credit history marks, or income from several sources. Where your circumstances are simple, applying direct costs nothing and answers the question quickly.

How long it lasts: typically six months

A decision in principle will typically last for six months³. The reason for a time limit is that the indication is a snapshot: your income, your debts and your credit file can all change, and a lender will not stand behind a figure based on stale information.

Some lenders' guidance quotes validity of 30 to 90 days, while independent guidance puts the typical figure at six months³. If you are house hunting in a slow market, check the date on your decision in principle before you make an offer, and be prepared to refresh it. Refreshing normally means giving your details again and a new check being run, which is another reason to be careful about how many full searches you accumulate.

The six month window is generous compared with the rest of the process. A mortgage application typically takes two to four weeks to process⁹, and a mortgage offer is generally received within four weeks of applying⁵. The decision in principle is therefore a brief first step in a much longer process: the type of mortgage, whether a fixed rate, a tracker or a discounted variable deal, is chosen after the amount that can be borrowed is known.

Why estate agents ask to see one

Estate agents will often want to ensure that you will be able to get a mortgage on a property before you put in an offer, so it can be helpful to have an agreement in principle by that point⁴. When a seller receives several offers, a buyer with a decision in principle looks more credible than one without, because a lender has already looked at their circumstances and raised no objection.

Registering with estate agents is free and will not create any obligation on your part⁷, so there is no cost to starting your search before you have the paperwork. But when the moment comes to make an offer, expect to be asked for evidence. Some agents will accept a decision in principle from any lender, not necessarily the one you end up applying to, which is why the document is sometimes obtained before the buyer has settled on a lender.

The agent's interest is commercial: a sale that collapses because the buyer cannot get a mortgage costs the seller weeks and the agent a sale. Your interest is the same in reverse. A decision in principle that says you can borrow enough for the home you are offering on reduces the risk of the purchase falling through at the mortgage stage, which is the most common point of failure after an offer is accepted. The wider steps of the purchase are covered in buying a home and first-time buyer mortgages.

When a mortgage in principle can be declined or stop being valid

A decision in principle can be declined at the outset, and one that has been issued can stop being valid. The common reasons fall into three groups.

Your circumstances. All potential borrowing is subject to affordability checks and credit status¹². If you are in arrears with your mortgage or any other debts, your credit rating will be affected and it is unlikely you will get a good mortgage offer¹⁶. A first-time buyer with a small deposit looking to get a 95% mortgage may struggle to borrow at such a high loan to value with a series of missed payments¹⁷. If you have marks on your credit history, you may need to get a mortgage from a specialist lender¹⁸, a route covered in getting a mortgage with bad credit and specialist mortgage lenders.

The property. The lender has not seen the home when it issues the indication. A valuation below the agreed price, a property type the lender will not secure, or a leasehold with a short lease can each change the answer. The lender can also refuse to let you sell your home if the price offered is less than what you owe on your mortgage and any secured loans¹⁹, which matters for buyers who need to sell before they can buy.

Time and change. The indication expires, typically after six months³. It can also be overtaken by events: a change of job, new debts, or a change in the terms you want. Under the FCA's responsible lending rules, changes that may not be treated as immaterial to affordability include a term extension into the customer's retirement, changing between repayment and interest-only, and the addition or removal of a customer²⁰. A decision in principle based on the old terms does not survive those changes.

Self-employed and contractor income

There is no such thing as a self-employed mortgage: you will be applying for the same mortgage products as employed homebuyers²¹. What differs is the proof of income, and it is worth assembling before you ask for a decision in principle, because the figure the lender indicates depends entirely on the income you can evidence.

For the full application, you will need details of your tax assessments and your accounts from the last three years, including the current tax year³. To provide proof, you will need statements from an accountant, tax return form SA302, plus supporting information such as bank statements and receipts⁵. Sole traders declare their income using self-assessment and have their tax calculated by HMRC, and lenders base their calculations on the SA302 form, which outlines your total income and tax paid²². Some lenders will accept two SA302 forms²². If you have been trading for less than a full year, evidence can be a summary of your trading records so far: for benefit purposes, claimants are asked for accounts for the last financial year or, if trading for less than six months, a summary of trading records to date²³, and lenders take a similar line on partial years.

Two practical points from independent guidance on self-employed mortgages. First, lenders will usually require a deposit of at least 10% of the purchase price if you are self-employed²². Second, you will usually be allowed to borrow up to four and a half times your annual household income, although this varies between lenders²¹. The full picture is in mortgages for self-employed people.

Remortgaging with a new lender

A decision in principle is not only for buying a home. Remortgaging occurs when existing borrowers redeem their current mortgage in favour of a new one secured on the same property, but with a different mortgage lender²⁴. When remortgaging, you would submit an agreement in principle once you have chosen a lender and product⁴.

A mortgage lender will base the application on several things including your credit file, the value of your house, and how much you want to borrow¹⁶. The same cautions about credit checks apply: if you are in arrears with your mortgage or other debts, it is unlikely you will get a good mortgage offer¹⁶.

If you are not changing lender, the process is different and lighter. Under the Mortgage Charter, customers who are up to date with payments can switch to a new mortgage deal with their lender at the end of their existing fixed-rate agreement without a new affordability check²⁵. Affordability will need to be checked if borrowers wish to permanently convert to an interest-only mortgage, or where the mortgage term is proposed to be extended beyond the borrower's expected retirement date²⁶. The comparison between the two routes is in remortgage or product transfer?, and the mechanics of staying put are in product transfers.

What happens next, and where to get help

Once a decision in principle is in place and an offer on a property is accepted, the full application begins. The lender checks documents, affordability and credit in detail, arranges the valuation, and issues the formal mortgage offer, generally within four weeks of applying⁵. Only then does the lender commit, and even an offer is subject to its own conditions and a reflection period before it becomes binding.

If the decision in principle stage raises problems rather than answers, free help exists. If you are having problems with your mortgage, you could get help from your lender if they have signed up to the Mortgage Charter²⁷. You do not need to pay for debt advice: it is free from charities including StepChange and National Debtline¹⁶. The Mortgage: Conduct of Business Rules say that a lender must "deal fairly" with anyone in arrears¹⁹, so a lender you are struggling with has obligations to you, not only the other way round.

That sentence is the one to hold on to. A mortgage in principle is a free, fast, usually low-risk way to learn what a lender might advance and to show the market you are a serious buyer. It is not a mortgage, and the work between the indication and the keys is the part that matters.