Mortgage in Principle Scotland

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Mortgage in Principle Scotland

Carolyn talks to us about a Mortgage in Principle and how this is a key step towards buying a home.

What is a Mortgage in Principle?

A Mortgage in Principle may be called a number of other things, including a Decision in Principle (DiP), an Agreement in Principle (AIP), or a Mortgage Promise.

It is basically where a lender looks at your circumstances, usually with a credit check on you, and comes back to say that in theory they will lend to you.

What may confuse people is that a mortgage application and offer is based partly on the individual’s affordability and credit worthiness. But it’s also partly about the property being suitable as security for a mortgage.

So a Decision in Principle is about credit checking the person and saying in theory that we will lend to them. There’s no guarantee of a mortgage until you find a property – then we would start an application.

How long does it take to get a Mortgage in Principle in Scotland?

Often we could do this very quickly, but it depends on the client’s circumstances. If they have a particularly complex source of income, or any credit issues in the past where we need to look at more specialist lenders, it’s not uncommon for it to take a few days. I wouldn’t promise anybody that timescale. We will always try to accommodate where possible.

Do you need a deposit for a Mortgage in Principle?

No. However, your Decision in Principle will be based on how much deposit you are likely to have. Generally, you need a minimum of 5% deposit. If we submit a Decision in Principle, we would be stating a purchase price and a deposit level.

If you’re approved at that, you would have a valid Decision in Principle, but you’re not going to get a mortgage until you’ve actually got your deposit funds. But you don’t need to have them when you apply for a Decision in Principle.

What should I do if my estate agent is asking to see my Mortgage in Principle? How do I get one?

Call us immediately and we will assist. We could usually do that for you quite quickly. We either provide a letter or confirmation of your Decision in Principle. Sometimes, if it’s with a lender that doesn’t provide confirmation in a suitable format, we’ll email the estate agent to confirm that we’re involved, we’re happy with the figures and you have been approved.

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The initial conversation is completely free and with no obligation. We usually take some information from clients so that we can offer meaningful advice.

Do I have to have a Mortgage in Principle through the estate agent I’m looking to purchase through?

No, you absolutely don’t. What you might find is that they won’t accept your offer unless they could see a Decision in Principle or confirmation of one.

When the market’s very buoyant, and a significant number of people want to view a property, agents sometimes only offer a viewing if you show them that Decision in Principle.

I absolutely understand that it could feel intrusive and personal, but you could see it from their side. They want to make sure you’re actually in the position to put an offer in on that property, should you like it.

Estate agents use it as a way of whittling down the interest in a property. You don’t have to do it, but obviously you will only get a viewing if you comply. So you’d have to work out what you’re comfortable with.

How reliable is a Mortgage in Principle? How long does a Mortgage in Principle last?

It varies from lender to lender. Theoretically, they last three to six months. But if I make a Decision in Principle for someone today and tomorrow they declare themselves bankrupt or give up their job – so they significantly change their circumstances – having a valid Decision in Principle is no use. They will not be accepted at mortgage application stage.

But if your circumstances have stayed much the same or perhaps improved since you did the Decision in Principle, even if it’s expired we might still expect you would be accepted.

The main reason you would want to get a Decision in Principle updated is if you’ve had a birthday your age may affect the term, or if something significant has changed – like your income or your credit commitments.

Can you get rejected for a Mortgage in Principle? Why would that be?

Sadly, yes, you could be. The main factor usually is credit score. If somebody doesn’t have enough income, for example, for the type of purchase they’re looking for, we should be able to tell them that without having to do a Decision in Principle.

So if you’re using an advisor, the Decision in Principle is generally just vetting your credit score. It’s not uncommon for people to be declined due to credit score. It’s not always very clear, but that’s the most typical reason.

Will I need a credit check? Does a Mortgage in Principle affect credit score?

Yes, there will be a credit check of some description for a Decision in Principle. A lot of lenders will do what’s called a soft search, which appears on a credit file, but doesn’t really do any harm.

If you subscribe to a credit score agency like Experian or ClearScore or anything like that, if somebody runs a Decision in Principle, you will see that search on your profile. Most of these sites will attribute a score to you, where a really good credit score might be 999 out of 1000.

People get quite fixated on that number, but in fact it’s just specific to the credit referencing agency and not the mortgage lender. After a Decision in Principle is applied for, you might see that 999 score come down to 995 – you don’t need to worry about that at all. It doesn’t impact how the lender views you. It will just bounce back up within a week or two.

Can I make an offer with a Mortgage in Principle? Does a Mortgage in Principle mean you’ll get a mortgage?

Yes, you could make an offer with a Mortgage in Principle. In fact I always tell my clients to have a Mortgage in Principle before making an offer because it gives you more gravitas.
If there’s competition for the property, it looks better if you have that in place.

But it doesn’t automatically mean you’ll get a mortgage. Once you have an offer accepted, we submit a full mortgage application. Lenders then start asking for documents and if anything isn’t accurate compared with what we said at the time of the Decision in Principle, or there’s some concern or any issue with the property, that may delay things.

But it’s rare that we can’t get somebody a mortgage offer. It does happen, but it’s relatively rare. Your solicitor will not put you in a position where you are legally liable to purchase the property until you have a mortgage offer, which is the stage after the mortgage application. So if there are any issues, while you would be very disappointed, that’s the worst of it.

How do I apply for a Mortgage in Principle?

I would urge you to approach us or any advisor to look at this. In the past, we’ve seen clients who have done their own Mortgage in Principle online. Effectively, there are websites that do a crude affordability check, but won’t credit check you – so that could be quite misleading.

There are several other factors that cause complications. For example, if your income is made up of shift allowances, overtime, commission, bonus or other things, lenders will have differing views on that. If you put the whole amount of money in as your salary, when in fact it’s split from different sources, you’ll get an inaccurate affordability result.

Another thing that could be misleading is that a website will give you a maximum that you could borrow, but that’s based on you having a very generous deposit – which you might not have.

It’s also worth bearing in mind that a mortgage advisor will know which lender is most likely to be receptive to your application. So if you have complex income or there’s something quirky about your application, you might easily find that a bank you approach online will say no – but we would know where to go with that.

So the right thing you could do is approach someone like myself. We’ll take some information and usually get things turned around within a day or two.

The Mortgage in Principle is always the first place to start and it’s a good idea to speak to us as early as possible. We don’t mind if you’re not planning to buy for a year or even longer – we’re here to make sure you understand your affordability.

There’s nothing worse than having to tell somebody who’s set their heart on a really expensive property that their income won’t let them get a mortgage for that. So this is the first place to start if you’re thinking of buying a property.