Your agreement in principle: the facts

Whether it’s your first home you’re looking to buy or one of many, purchasing a property is an exciting yet daunting task. Getting your ‘ducks in a row’ is one thing many (including our independent mortgage advisors) recommend, especially when it comes to how you’ll finance your upcoming purchase.

During the early stages of the property buying process, determining whether a fixed rate or tracker mortgage is right for you won’t be such a huge concern. What will make for essential reading for both the buyer and seller is how much you can afford to borrow, and that’s where obtaining an agreement in principle (AIP) comes in handy…

What exactly is an agreement in principle?

An agreement in principle (AIP) is a document which offers an indication of how much you’re likely to be able to secure via a mortgage. Also referred to as a mortgage or decision in principle, it is provided by a prospective mortgage lender following a brief, preliminary assessment of your financial circumstances.

How does an AIP differ from a mortgage offer?

An agreement in principle provides would-be buyers with a ballpark figure so they can start or continue their property search with more realistic expectations and aims. It is important to note however that an agreement in principle is NOT a mortgage offer. Here Rightmove explains the difference between the two:

“You can use a Mortgage in Principle to help you make an offer on a home. Once accepted, you can then progress to a full mortgage application, and if successful, get a mortgage offer. This is official confirmation that a lender will loan you the money for a specific property. Bear in mind that a mortgage offer will be subject to further checks, like a property survey.”

Is it possible to be declined after obtaining an AIP?

An agreement in principle is by no means a guarantee that you’ll be able to secure the official mortgage offer that will allow you to proceed with your purchase and secure the home of your dreams.

With this in mind, a declined mortgage application is possible, even if the same lender offered you an agreement in principle previously. Some lenders will run a ‘soft search’ that doesn’t leave a mark on your credit history to offer an AIP, with a ‘hard search’ conducted during the full application.

During the hard search, your earnings and credit history will be reviewed in more detail, and may not meet the lender’s affordability checks as a result.

Is it really worth obtaining an agreement in principle?

Yes! An agreement in principle will give you a clearer understanding of how much you can afford to borrow to not only streamline your property search but boost your confidence as a buyer. When compared with other buyers who haven’t obtained an AIP, you will also have more credibility. Sellers after all often prefer a buyer with an agreement in principle in place.

When should I request an agreement in principle?

Ideally, you should obtain an AIP before you start actively searching for properties. But remember, an agreement in principle is only valid for between 30 and 90 days. Thankfully, you can leave the ‘how’ up to us!

Our mortgage advisors can find you the best lender for your circumstances, and obtain an agreement in principle that’s more likely to lead to a mortgage offer should you wish to proceed with a purchase. So, what are you waiting for? Contact us today to discuss your next steps.