A Decision in Principle can help a buyer establish a realistic property budget before arranging viewings or making an offer. It may also reassure an estate agent or seller that the buyer has considered the mortgage requirement.
However, a Decision in Principle is not a mortgage offer. It is an initial indication based on limited information, and the lender can still decline or reduce the borrowing after completing its full assessment.
Understanding what has—and has not—been approved can prevent buyers and landlords from making commitments based on an assumption rather than a confirmed mortgage.
Different names for the same stage
A Decision in Principle may also be called an Agreement in Principle or Mortgage in Principle. Lenders often abbreviate these terms to DIP, AIP or MIP.
The terminology varies, but the purpose is broadly the same: to indicate how much the lender might be prepared to advance based on the information available at that stage.
The lender may ask about:
- Income and employment
- Regular expenditure
- Loans, credit cards and other commitments
- Deposit and intended purchase price
- Mortgage term
- Residential status and address history
- Credit history
- Existing properties and mortgages
The calculation can provide a useful starting point, but it is only as reliable as the information supplied.
What does a Decision in Principle tell you?
A successful decision indicates that the lender’s initial system has accepted the applicant and proposed borrowing on the details entered.
It can help the buyer:
- Establish an approximate borrowing range
- Set a more realistic property budget
- Demonstrate financial preparation to an estate agent
- Identify an obvious affordability or credit problem
- Progress to a full mortgage application with that lender
This can be particularly useful for first-time buyers who need to understand how their income, deposit and commitments combine to determine the likely purchase budget.
For home movers, the calculation may also account for the existing mortgage, expected sale proceeds and continuing financial commitments.
What has not been approved?
A Decision in Principle does not usually confirm that the lender has accepted the complete application, supporting documents or chosen property.
At this stage, the lender may not have:
- Verified payslips, accounts or tax documents
- Examined the applicant’s bank statements
- Confirmed the source of the deposit
- Fully assessed variable or self-employed income
- Reviewed every credit commitment
- Completed a property valuation
- Checked the property against its lending criteria
- Approved the solicitor’s legal report
- Issued a formal mortgage offer
The borrowing figure can therefore change. If the verified income is lower, expenditure is higher or an undisclosed commitment appears, the lender may reduce the amount or decline the application.
The same can happen if the property valuation is lower than the purchase price or the building is unsuitable security for that lender.
Does it affect the credit file?
Some lenders use a soft credit search for a Decision in Principle. This can normally be seen by the applicant but not by other organisations assessing the credit file.
Other application processes may involve a hard search, particularly as the case progresses. A hard search can be visible to other lenders and several applications within a short period may influence later assessments.
Borrowers should confirm which type of search will be completed before proceeding. They should also avoid obtaining multiple speculative decisions merely to see which lender gives the largest figure.
The most generous initial calculation is not necessarily the mortgage most likely to complete.
A Decision in Principle does not reserve a rate
Mortgage products and rates can change between the initial decision and full application.
Unless the lender has completed the necessary product-reservation process, the rate displayed or discussed when the Decision in Principle is produced might not remain available.
The decision will also have an expiry date. Its validity period differs between lenders, and the applicant may need to update or repeat it if the property search takes longer than expected.
Any change to income, employment, debts, deposit or personal circumstances should be disclosed. A decision obtained before taking out car finance, changing jobs or increasing credit-card borrowing may no longer accurately represent the application.
What about buy-to-let applicants?
A buy-to-let Decision in Principle can be useful, but it may rely on an estimated property value and anticipated market rent.
The lender still needs to confirm that the rent satisfies its Interest Coverage Ratio and stressed-rate calculation. It may also assess the applicant’s income, landlord experience, ownership structure and complete portfolio.
A property that looks acceptable initially could later create difficulties because of its construction, condition, lease, licensing, location or intended letting model.
For portfolio landlords, an individual property may pass the rental calculation while the wider portfolio fails the lender’s assessment. An accurate schedule of values, mortgage balances, rents and ownership details should therefore be prepared before the full application.
Decision in Principle versus mortgage offer
The distinction is important:
A Decision in Principle is an initial indication that the lender may be prepared to lend, subject to further checks.
A mortgage offer follows the full application, underwriting, document assessment and satisfactory valuation. It confirms the loan the lender is prepared to provide for the identified property, subject to the offer’s conditions and validity period.
Even a mortgage offer is not the same as legal completion. Solicitors must complete the necessary legal work and request the mortgage funds before the transaction can finish.
Make the initial decision more reliable
Applicants should provide accurate income, expenditure, deposit and credit information from the beginning. Guessing figures or omitting commitments can create a misleading result and cause problems later.
Before requesting a Decision in Principle:
- Check all available credit reports.
- Calculate the deposit and purchasing costs.
- Prepare income and bank-statement evidence.
- Record loans, credit cards and other commitments accurately.
- Explain any variable income or credit problems.
- Discuss unusual property types or intended uses.
- Avoid taking new credit before completion.
NetRent Mortgage Solutions works with DNA Financial Solutions to help buyers, landlords and remortgage applicants establish realistic borrowing expectations and approach suitable lenders.
To discuss a purchase, remortgage or Decision in Principle, call 01352 721300 or email mortgages@netrent.co.uk.
NetRent does not provide legal advice. This article represents our general understanding of the landlord mortgage and rental property market and is provided for information only.
Mortgage products, rates, affordability calculations and lender criteria can change. A Decision in Principle is not a mortgage offer, and individual circumstances vary.