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 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. However, some lenders will perform a ‘hard’ search, and if they decline your application, this will show up on your credit file when you apply to another lender.

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

Change of circumstances

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

Becoming divorced or separated may affect your application, especially if you will rely 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 guarantee that your application will be approved this time. For this reason, getting a mortgage in principle for as much as you can is always a good idea.

You run out of time

Not many people realise that MIPs 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, waiting until you are ready for serious house hunting is a good idea.

The home you have chosen may not be of standard construction, affecting your likelihood of securing a mortgage with some lenders. Examples include thatched roofs, wooden/steel frames, and concrete or high-rise flats.

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

Tips to help your mortgage in principle application

Check your credit score with several credit agencies, such as Experian, before you submit 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 applying 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 an expert to get the right advice on getting a mortgage in principle.