A Mortgage in Principle is an initial indication of how much a lender might be prepared to lend you towards buying a share of a Shared Ownership home. It is based on an early review of your income, spending, debts and available deposit.
It may also be called an Agreement in Principle, or AIP, or a Decision in Principle, or DIP. These terms generally refer to the same initial stage of the mortgage process.
A Mortgage in Principle is not a formal mortgage offer and does not guarantee that your full application will be approved.
How an MIP works with Shared Ownership
With Shared Ownership, you buy a percentage share of a home and pay rent to the Shared Ownership provider on the share you do not own.
The mortgage is used to fund the share you are buying rather than the property’s full market value. Your deposit is usually between 5% and 10% of the price of that share, although the amount required will depend on the lender and your circumstances.
For example, if a home has a full market value of £300,000 and you want to buy a 25% share:
- your share would cost £75,000
- a 10% deposit on your share would be £7,500
- the remaining £67,500 could be funded with a mortgage
- you would pay rent on the 75% share owned by the provider
- you may also pay a service charge and other property-related costs
This example is for illustration only. The share available, deposit required, property costs and amount you can borrow will depend on the home, provider, lender and your circumstances.
Read the government’s guide to Shared Ownership for more information about how the scheme works.
Mortgage in Principle and affordability assessments
A Mortgage in Principle is not the same as a Shared Ownership affordability assessment.
An MIP comes from a mortgage lender. It gives an initial indication of how much that lender might be prepared to lend you.
A Shared Ownership affordability assessment normally forms part of the provider’s application process. For grant-funded Shared Ownership covered by Homes England guidance, this assessment is completed by a qualified and experienced independent financial adviser alongside the provider’s eligibility check.
It considers whether the share you intend to buy and the overall housing costs appear affordable and sustainable for your household.
The assessment may take account of:
- your expected mortgage payment
- rent on the share you do not own
- service charges and other property charges
- your income and spending
- your available deposit
- existing debts and financial commitments
Receiving an MIP does not mean you have passed the provider’s eligibility or affordability checks. Passing the provider’s assessment does not guarantee that a lender will approve your mortgage.
The three main stages
- Mortgage in Principle: an initial indication of possible borrowing from a lender
- Shared Ownership affordability assessment: an assessment of whether the proposed purchase and overall costs are suitable for your household
- Formal mortgage offer: the lender’s offer following a full financial assessment, property valuation and other checks
The order of these stages can vary between providers, lenders and mortgage advisers.
When to obtain a Mortgage in Principle
It can be useful to obtain an MIP before reserving a Shared Ownership home. It gives you an early indication of whether you might be able to borrow the amount needed to buy your proposed share.
Some providers may ask for an MIP before accepting or progressing a reservation. Check the requirements for the home that interests you.
You may be able to request an MIP before choosing a particular property. The lender may then use estimated figures for the share price, rent and service charge.
The amount you might be able to borrow could change once you select a home and the lender receives its confirmed costs.
What a lender may consider
Lenders have their own affordability calculations and lending criteria. A lender may consider:
- your employment and income
- your regular household spending
- loans, credit cards and other debts
- your credit history
- your available deposit
- the value of the share you intend to buy
- rent on the remaining share
- service charges and other regular property costs
- whether you are applying alone or jointly
One lender may indicate a different borrowing amount from another.
Treat the amount shown in an MIP as an initial indication, not a recommendation about how much you should spend. Your budget will also need to account for rent, service charges, household bills and everyday living expenses.
How to get a Mortgage in Principle
You can usually request an MIP directly from a lender offering Shared Ownership mortgages or through a mortgage adviser.
You may be asked for:
- your personal and address details
- information about your employment and income
- details of your regular spending
- information about loans, credit cards and other commitments
- the amount and source of your deposit
- details of the share you intend to buy
- the expected rent and service charge
- information about anyone applying with you
If you apply jointly, the lender will usually consider the circumstances of both applicants.
The initial decision may be based on the information you provide. During a full mortgage application, the lender is likely to ask for supporting evidence, such as payslips, bank statements, proof of identity and evidence of your deposit.
Provide complete and accurate information. If your evidence differs from the details used for the MIP, the lender may change its decision.
Credit searches and your application
The effect on your credit file will depend on the type of search the lender uses.
A soft credit search is not normally visible to other lenders reviewing your credit file. A hard credit search is recorded on your file and may be visible to organisations considering future credit applications.
Check which type of search will be used before applying. Several hard searches within a short period could affect how another lender considers a later application.
A further credit search may be carried out when you submit your full mortgage application.
How long an MIP remains valid
The validity period varies between lenders. Your MIP should state its expiry date and any conditions that apply.
You may need an updated MIP if:
- the original decision expires
- your employment or income changes
- your deposit changes
- you take out further credit
- your regular financial commitments increase
- you choose a different property or percentage share
- the confirmed rent or service charge differs from the estimate
- you apply to another lender
Tell the lender or mortgage adviser if your circumstances change. An MIP based on outdated information may no longer reflect the amount the lender might be prepared to offer.
What happens after you receive an MIP?
You can use the amount shown as an initial guide while looking for a suitable Shared Ownership home.
Before reserving a property, check:
- the full market value and share price
- the percentage share available
- the rent on the remaining share
- the service charge and other regular costs
- the provider’s eligibility and affordability requirements
- the expiry date of your MIP
- whether estimated or confirmed property costs were used
After reserving, you will normally need to make a full mortgage application. The lender may verify your finances, review your documents, arrange a valuation and check that the property and Shared Ownership lease meet its requirements.
If the application is approved, the lender will issue a formal mortgage offer.
An MIP does not reserve a home, mortgage product or interest rate. It is also different from a mortgage illustration, which provides details of a particular mortgage product, including its rate, fees, estimated payments and main conditions.
Find a Shared Ownership home
A Mortgage in Principle can help you understand what a lender might be prepared to lend before you reserve a Shared Ownership home. You will still need to complete the provider’s application and affordability checks, followed by the lender’s full mortgage assessment.
https://www.guinnesshomes.co.uk/developments/.
Important information
This article provides general information only. It does not constitute personalised financial, mortgage, tax or legal advice.
Mortgage availability, interest rates, affordability assessments and lending criteria depend on the lender, property and your circumstances. They may change. The example in this article is illustrative and does not represent a mortgage quotation, personal recommendation or guarantee of borrowing.
Before choosing or applying for a mortgage, consider speaking to a suitably qualified mortgage adviser. You can check whether a financial services firm or adviser is authorised or registered using the https://register.fca.org.uk/.
For advice about a Shared Ownership lease, contracts, Stamp Duty Land Tax or your legal responsibilities, speak to a solicitor or licensed conveyancer.
Your home may be repossessed if you do not keep up repayments on your mortgage.
