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First-time Buyer

Why would a Decision in Principle not lead to a Mortgage in Principle?

Paloma Kubiak
Written By:
Paloma Kubiak

Lenders will typically offer borrowers an indication of what they may be able to lend by taking down some basic information, without the need for a full mortgage application. However, there’s no guarantee it will turn into a formal offer.

A ‘Decision in Principle’ (DiP) or ‘Agreement in Principle’ (AiP) can be helpful for borrowers who are unsure of whether they may be able to borrow the level of mortgage that they need.

The DiP will take down the basic income information and carry out a credit check to come up with what may be possible.

This can help to flag if there may be a potential issue so can be useful for those who are concerned their credit file may carry some issues or could be a little ‘thin’ to reach the necessary scoring requirement.

It can also help to give some reassurance to a vendor that the offer is realistic and should have a good chance of being financed by a mortgage lender.

However, it doesn’t act as a guarantee and once a full application is made there’s a chance that the DiP may not turn into a formal mortgage offer. That could come down to a variety of different reasons. Once the application is made and supporting paperwork is provided, it may raise further questions from the underwriter.

Under the spotlight with the underwriter

It could turn out that the breakdown of income may not be quite how it was presented on the DiP for example, or that bank statements revealed some additional outgoings that needed to be factored into the affordability calculation.

Alternatively, it could potentially be something to do with the type of property not meeting the lender’s requirements. Or it could be that a change in circumstances means that the decision has to shift from a ‘yes’ to ‘no’.

Although a DiP can be useful, it makes sense to provide as much detail as possible but it is also important to remember that it isn’t a guarantee. Having the paperwork to back up the full mortgage application will be important and running through a monthly budget will help you understand all regular outgoings.

Thankfully, now many DiPs use a soft credit check but it’s worth being sure as ratcheting up a number of credit checks could impact your score.

In addition, it’s important to check that the lender is still offering the best product option for you as things may have changed since the DiP was originally conducted.

An adviser will be able to give a good overview of whether there might be any difficult issues that need to be explored further and will also be able to help run a DiP, if that’s necessary.

David Hollingworth is associate director, communications at L&C Mortgages