Mortgage in principle: what can go wrong?

Firstly, it’s important to realise that getting a mortgage in principle isn’t a guarantee that the lender will offer you a mortgage. You should just take it as a guide as to what the mortgage provider might be willing to lend.

They’ve usually arrived at their decision by conducting a ‘soft’ credit check. This search doesn’t leave any marks on your credit history. But some lenders will perform a ‘hard’ search, and if they decline your application, then this will show up on your credit file when you apply to another lender.

So, assuming you have been approved for a ‘mortgage in principle’ (MIP), what could go wrong? Once you’ve put in an offer on a property, the lender could still decline your application for a number of reasons.

Change of circumstances

You may change or lose your current job, and your income could be reduced or otherwise compromised. A bad debt (such as a missed credit card or loan repayment) may result in your credit score going down.

Becoming divorced or separated may have a bearing on your application, especially if you were relying on two incomes to service the loan.

You suddenly need a larger mortgage

You’ve found your dream home, but it costs more than the amount of your MIP. Unfortunately, you’ll have to go back to your lender and ask if they could lend you more than the original amount that was agreed on.

This goes through the application and credit check process again, with no real guarantee that your application will be approved this time around. For this reason, it’s always a good idea to get a mortgage in principle for as much as you can.

You run out of time

Not many people realise that MIP’s have an expiry date.  The time limit on a mortgage in principle tends to vary from lender to lender, but most are around one to three months. So, it’s a good idea to wait until you are ready for some serious house hunting.

The home you have chosen may not be of standard construction. Lenders are less willing to lend on properties that are not brick with a tile roof. This can include thatched roofs, wooden/steel frames, concrete or high-rise flats to name just a few.

You’ll usually need to find a lender that specialises in non- standard construction homes.

Tips to help your mortgage in principle application

Check your credit score with a couple of credit agencies such as Experian before you put in your mortgage application.  This will allow you to see any black marks such as missed payments and make a ‘notice of correction’ to explain why your credit score has been affected.

Starting a new job can ring alarm bells, so it’s wise to wait at least six months before you apply for a mortgage in principle. Make sure you are on the electoral roll. It’s a small thing, but it can affect your application if you’re not on it.

As always, you should talk to expert, to get the right advice on getting a mortgage in principle.