Property portal Zoopla has suggested, in its latest House Price Index(*), that 1.5 million homes will be changing hands this year - 45% more than in 2020 - meaning competition amongst buyers could be strong. Here we explain how, by gaining a mortgage in principle, you could place yourself in a better position to buy a property and we also answer questions about what might happen once you have one.
What is a mortgage in principle?
A mortgage lender will offer a Mortgage in Principle (sometimes called a Decision in Principle or Mortgage Agreement in Principle (AIP)) based on financial information they’ve gained from you - often with the support of your financial adviser. It means they are agreeing to offer you a mortgage loan because they think you’re in a good financial position to pay it back within a set repayment period. It’s offered ‘in principle’ assuming that your circumstances - or even theirs - don’t change before a final mortgage offer is made. It’s usually a great way to satisfy a seller (and their estate agent) that you are a serious buyer and are in a good financial position to buy. Buyers without one may be viewed less favourably.
Can I qualify for a mortgage or mortgage in principle?
It depends on your particular circumstances and if you are able to prove that you can pay the loan back over time. To help you, start reviewing your spending habits as soon as you start thinking about applying for a mortgage, control any other borrowing and it’s a good idea to get on the electoral roll. You should also consider gaining the support of a good financial adviser, ideally from Embrace Financial Services (EFS). In advance of any mortgage appointment you’ll need to get documents together to prove your financial position i.e. usually 3 months’ worth of pay slips, bank statements and details of any credit arrangements you may already have. There’s a handy mortgage appointment checklist and various mortgage guides on our website that should help you in understanding what you might need.
How long does a mortgage in principle take?
Often you’ll gain a MIP (MIP) within days if not quicker. However, if you have a good financial adviser in support or by booking an appointment with a financial adviser working for EFS, for example, they are able to access an online system that offers a MIP within minutes (much quicker than high street lenders).
At EFS, our financial advisers will also be able to suggest which lenders will be most likely to offer a MIP to you, from a panel of literally hundreds that they have access to. This can save time and effort all round and also ensure there’s a limit on the number of credit searches being made on you by different lenders which may, in turn, affect your credit score.
At EFS we also know that sometimes only a specialist lender will be suitable, highlighting just how important it is to choose a whole of market financial adviser rather than just going to one high street lender – who may have a limited range of mortgages on offer.
Are there benefits to having a mortgage in principle?
Yes. Currently, with each property for sale often having multiple buyers making offers, having a MIP could really make the difference to your offer being accepted first - if you can get one in minutes, there are therefore obvious benefits.
The other benefit is that by using EFS, for example, you’ll be get a better idea of what your budget to buy might be and in some cases this can lead you to being able to buy a bigger property, or even a dream home, rather than a ‘stepping stone’ property.
This, in turn, helps when looking for properties and ensures that you can be more specific and accurate when asking an agent for help or when searching online.
How long does a mortgage in principle last?
It’s usually about 90 days although it if runs out, and your circumstances haven’t changed, you may be able to get a new one from the same lender or alternatively start the process again with the same lender or a new one.
What happens once I find a property I’d like to buy and my offer is accepted on it?
You’ll need to go back to your financial adviser who will be able to work with you in completing the final application forms - which will now include details of the property you want to buy. It should be easier as they will already have a lot of the information from you from your MIP application. The adviser may automatically go back to the lender who has offered the MIP but, if different mortgage deals have come to market (perhaps with more favourable rates and terms) or your circumstances have changed, your financial adviser may suggest you apply elsewhere.
Once the formal application to the lender is made, the lender will arrange a mortgage valuation of the property, to ensure that the loan amount is acceptable compared to the price being paid and the condition of the property. Once satisfied, usually within a week or so, a formal mortgage offer will be made to you.
What happens after the mortgage offer is issued and how long is it after mortgage offer to completion?
You should have a conveyancing solicitor in place ready to progress your purchase. They will then work with your local authority and the seller’s solicitor to gain further information about the property and the surrounding area and, once all parties are satisfied, contracts can be exchanged and your deposit should be paid. The whole process can, on average, take between 6 and 16 weeks. At exchange you’re committed to buy the property and within 1 -14 days you should complete the purchase – with the mortgage loan you’ve secured used to pay the seller for the property – all with the support of your solicitor, and theirs.
So, generally, having a mortgage in a principle is a great idea, and could make all the difference in securing your new home but, if you’d like to discuss them further, or seek to secure one, why not contact one of our financial advisers – they will be more than happy to help.
(*) Zoopla House Price Index Report April 2021