Agreement in Principle
Your Home may be Repossessed if you do not keep up repayments on your mortgage
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Agreement in Principle (Part 1)
What is an Agreement in Principle?
There are different terms and interpretations for this. You might hear people refer to a Decision in Principle – which is usually done prior to actually having a credit check.
Meanwhile an Agreement in Principle is where you’ve submitted your details to a lender, they have done a credit check and confirmed what they will lend you, subject to full underwriting.
For the full application, they need the rest of your documents and property details – and then they’ll give full approval.
The Agreement in Principle is a certificate confirming how much you can borrow based on the circumstances you’ve shared with your adviser or lender. It’s a bit of security, setting you up for the next stage of buying a home.
What should I do if my estate agent is asking to see my Agreement in Principle? How do I get one?
The good news is that means they’re taking you seriously – they want to take you to the next stage of buying.
To get one, you need to speak to an adviser. It is possible to get them direct through a bank, but they will only be looking at their own criteria and affordability. Brokers like ourselves will be looking at different lenders around affordability and criteria.
We can produce an Agreement in Principle for you, either from our own systems, or we can go to lenders as well. It’s simply a bit of paper that says that we’ve looked at your circumstances and a lender has looked at your credit file. Now, in principle, they’re happy to lend this amount of money.
Do I have to have an Agreement in Principle through the estate agents I’m looking to purchase through?
No. You’ll need to confirm that the property is affordable and that you’ve spoken to somebody about it, but you don’t have to use the estate agent’s broker.
You can talk to any mortgage adviser. You could talk to your own bank, too. It doesn’t have to be through whoever they recommend.
How reliable is an Agreement in Principle? How long does an Agreement in Principle last?
It depends on how reliable the information is that we put in. If I put a load of nonsense into a system, I’ll get nonsense out at the other end.
But a good adviser will ask you questions to make sure what goes into that system is correct – especially your salary and outgoings, for example – and so what you get out of it should be pretty accurate.
We’ve done a credit search, we’ve looked at your affordability and we know what debts you’ve got. It’s normally pretty spot on. Some things could still come up during a full application if there have been any changes or the property is unusual in some way.
Generally speaking, an Agreement in Principle (AIP) lasts for six months. However, if you go to an estate agent with one that’s five and a half months old, they might ask for a fresh AIP. Obviously, once you do your AIP, it’s valid, but everything could change. You could have missed a payment or taken a different job since receiving it. Estate agents often like to see an AIP from the past three months.
Can I make an offer with an Agreement in Principle?
Yes. In theory, you could make an offer without an Agreement in Principle, but talk to an adviser first to make sure it’s viable. From a legal perspective in the UK, the point at which you commit to buy is the exchange of contracts, not on putting in an offer.
Does an Agreement in Principle mean you’ll get a mortgage?
Most of the time, yes. We’ve checked your credit file, your income and outgoings. It should be pretty reliable. But a lot can happen between the time you get an Agreement in Principle and when you’re due to exchange or complete.
It could have nothing to do with you. It could be something around the property’s shared driveway that throws everything sideways at the last minute. It doesn’t mean you’re definitely going to get a mortgage, but it’s the best indicator you’re going to get until you actually go through the process.
Will I need a credit check? Does an Agreement in Principle affect credit score?
It depends on the level of detail you’re going into with that Decision in Principle or Agreement in Principle. We can assess your initial circumstances without a full credit check.
Typically, if you’re looking to purchase a property, it’s safer to do that rather than have a mark left on your credit report. However, you can use a lender that does a ‘soft’ credit check rather than a hard check. A hard check would be visible to yourself and other lenders, but it shouldn’t impact your score.
If you’re just doing that once for an Agreement in Principle, you could still apply with a different lender later on without your score being affected. As brokers, we know which lenders use soft scoring or leave hard footprints. We wouldn’t impact somebody’s credit file just for an Agreement in Principle, unless we really had to.
How do I apply for an Agreement in Principle? How long does this take?
An adviser or a brokerage such as ourselves can get an Agreement in Principle done the same day or early the next day if you contact us quite late in the day.
All we do is go through your basic details – where you’ve lived over the last three years, your credit commitments, your job, what you earn, your outgoings, any dependents you have and the general situation.
We then take that to a lender and key it into their system to get an Agreement in Principle. It doesn’t take long. Normally the AIP lasts six months, although some estate agents like them to be a little more recent.
How can a mortgage broker help here? Is there anything else we need to know?
There are a lot of different things to consider here. A good mortgage adviser will guide you through that, and be there to hold your hand as you’re going through the process.
We do this every day, and there’ll be things that can take us just seconds to answer – things that might take you much longer to navigate on your own.
Make use of the expertise and experience from a good adviser – it’ll make your life a lot easier and the process a lot less stressful.
Key Takeaways:
- An Agreement in Principle (AIP) involves a lender performing a credit check and confirming how much they will lend you, subject to full underwriting. A Decision in Principle is usually done before a credit check.
- The AIP is a certificate that confirms your borrowing amount based on your circumstances, giving you security for the next stage of buying a home. It typically lasts for six months, although estate agents often prefer one that is more recent (e.g., from the last three months).
- The reliability of the AIP is dependent on the accuracy of the information you provide your adviser, such as salary and outgoings. While usually very accurate, full approval is still subject to the full application and property details.
- While you can get an AIP directly through a bank, a mortgage broker will look at the affordability and criteria of different lenders, not just one. You are not required to use the estate agent’s recommended broker.
- Obtaining an AIP typically involves a credit check. A good adviser will aim to use lenders who perform a ‘soft’ credit check to avoid impacting your credit score, as opposed to a ‘hard’ check.
Your home may be repossessed if you do not keep up repayments on your mortgage.
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Contact us for a fee-free initial consultation, our team of mortgage and financial experts is here to help. There may be a fee for arranging a buy-to-let mortgage, and the exact amount will depend on your specific circumstances. Typically, we do not charge a fee for residential mortgage advice.
Agreement in Principle (Part 2)
When should I get an Agreement in Principle?
It’s got to be one of the first things you do when thinking about buying a property. For both first-time buyers and home movers, it’s really important to have that chat early on to work out what you can borrow, if it’s feasible, and what you need to do to get best prepared.
What information do I need to get an Agreement in Principle?
There’s all sorts of different information, starting with your basic details. We need to know who you are as a person – and your date of birth and address history. Then, to work out your affordability we need details of your income and expenditure.
You need a good idea of what your income looks like. If you’re self-employed or have unpredictable income, then we can talk it through and guide you to get extra information.
How is affordability calculated for an Agreement in Principle?
We’ll look at your income and outgoings. The good thing about a broker is we can access lots of different lenders, to quickly see who’s going to give you good affordability and who’s more middle of the road.
We tend to shortlist two or three and go directly to those lenders. We use their calculators and see exactly what can be borrowed, assuming everything a customer tells us is correct.
We usually give you a range – one being a stretch and the others more easily achievable. The key is what you can afford to pay each month and whether you fit the lender’s income multiples in the background.
Is an Agreement in Principle guaranteed? Can my mortgage be declined after an Agreement in Principle?
No, it’s not guaranteed. An Agreement in Principle essentially states that the lender would approve you for a mortgage subject to the information being correct. But, as you would expect, they will do extra due diligence at the point of full application.
Once you find a property, they may find something there that’s not quite satisfactory. Or perhaps during the process you take out another loan or other additional borrowing, and that impacts your credit score. It might mean they decline post-application if something material has changed.
But in theory, when you have a credit-backed Agreement in Principle and all the key parts are correct, you should be approved – as long as the property is satisfactory. There’s just no guarantee, as things can change.
Can I get an Agreement in Principle if I’m a first-time buyer?
Yes – it’s all the same. You’ve still got to find out what you can borrow, plus your deposit, and what affordability you’ll be looking at. If anything, it’s more essential to get one as a first-time buyer because you want estate agents to take you seriously.
You want to show you’ve sought advice, you’re on the ball and you’ve got something in writing to say you’re good for the money – that’s basically what the Agreement in Principle does. As a first-time buyer, it’s essential to look at this as soon as possible.
How will bad credit affect an Agreement in Principle?
Where somebody has some form of adverse credit, we would look for a credit-backed Agreement in Principle, where a lender checks your credit.
We would try to find a lender that uses a soft credit check rather than a hard one, which would show up on your credit report. A soft check will show up to that lender, but not to everybody else, and won’t reduce your credit score.
Once we’ve done that and the lender indicates that they would approve you even with your bad credit, you can go ahead as normal.
Is it harder to get an Agreement in Principle if I’m self-employed?
It’s possibly a touch harder, just because income can be assessed differently if you’re self-employed. A limited company director, for example, might tell us they earn X amount but a lender views it differently and calculates their income as Y.
We normally ask for your accounts to verify that what we’re putting through the lender is what they’ll take as your income. Then, the output on the other end is correct. It’s like any computer system – if you put rubbish in, you get rubbish out; so we check that upfront.
It can be a little bit more work for us and the customer, just because of those extra documents and checks. For someone with a simple £35,000 salary, that number’s set. A lender wouldn’t see that any differently from others.
I’ve been declined an Agreement in Principle. What can I do?
Talk to somebody like ourselves, an experienced adviser. We would dig deeper and work out the reason for the decline – whether that’s how the income was declared, if that’s not quite enough for affordability, or there’s something on the credit file.
We’d identify the issue and find the best way to navigate that – possibly with a different lender. That lender might have picked up a missed payment or be using your salary and dividends rather than your salary and net profit.
A different lender might do an enhanced assessment or take a more linear approach and then approve your Agreement in Principle. Once we know the details, we can make a plan from an informed point of view.
What are the benefits of getting an Agreement in Principle with a mortgage broker?
There are so many reasons to do this through a broker. We know the market, we know different lenders and their criteria, and we know the different affordability calculations.
We present you in the right way to get a result, and you’ve only got to give us your information once. We can use that with multiple lenders, so you haven’t got to contact every lender and give them the same details over and over again. We do that hard work while you get on with your life.
Often someone comes to us having tried their own bank, who said no or that it’s not affordable. We could potentially go back to the same bank through the intermediary channel and actually get it approved. We can use that approach if that bank is the most cost-effective or has the most appropriate rate for you.
Through a broker, you might get slightly better affordability or more lenient credit scoring than you could get direct. It’s definitely not unheard of to get you agreed even after a decline.
Key Takeaways:
- Obtaining an Agreement in Principle (AIP) should be one of the first steps when considering buying a property, especially for first-time buyers who need it to be taken seriously by estate agents.
- To secure an AIP, you must provide basic personal details, address history, and detailed information regarding your income and expenditure for affordability calculations.
- An AIP is not a guarantee; a lender will perform extra due diligence during the full application process, and approval depends on the information remaining correct and the property being satisfactory.
- The process can be slightly more complex for self-employed individuals, as income assessment can vary between lenders, and those with adverse credit may require a lender who performs a soft credit check.
- Working with a mortgage broker is highly beneficial as they know the market, can access multiple lenders with a single information submission, and may achieve approval even if you were previously declined directly by a bank.
YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
YOU MAY HAVE TO PAY AN EARLY REPAYMENT CHARGE TO YOUR EXISTING LENDER IF YOU REMORTGAGE.
NOT ALL BUY TO LET MORTGAGES ARE REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.
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