What is a mortgage in principle and how does it work?

Full answer

A mortgage in principle (MIP), also known as an agreement in principle (AIP) or decision in principle (DIP), is an indication from a lender of roughly how much it would be willing to lend you. It is produced after a light-touch assessment of your income, regular outgoings and credit history, often within minutes online. It is important to understand what an MIP is not. It is not a binding mortgage offer and it does not guarantee you will get the loan. The full application that follows involves deeper affordability checks, document verification (payslips, bank statements, ID) and a valuation of the specific property. A lender can still decline at that stage or offer a different amount. Why bother getting one. Estate agents and sellers take offers from buyers with an MIP more seriously, because it signals you have realistic borrowing power and a deposit in place. It also helps you set a budget before you start viewing, so you do not fall for a property you cannot finance. Does it affect your credit score. Lenders use either a soft search, which is invisible to other lenders and leaves no mark, or a hard search, which is recorded. Many providers now use a soft search for the MIP stage, but check before applying, and avoid making multiple hard-search applications in a short period. An MIP typically remains valid for 60 to 90 days. If it lapses before you find a property, you simply renew it. What determines the figure. Lenders apply an income multiple (commonly around 4 to 4.5 times income, though this varies) and then stress-test affordability against your committed spending and existing debt. Your loan-to-value, set by your deposit, then shapes the interest rate available. Use the mortgage calculator to estimate borrowing and monthly repayments before you request an MIP, so the figure you receive matches your expectations.

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