If you are thinking about buying a home, one of the first phrases you are likely to hear is Mortgage Agreement in Principle.
It may also be called a Mortgage in Principle, Agreement in Principle, Decision in Principle or simply an AIP. They all broadly mean the same thing.
A Mortgage Agreement in Principle is an initial indication from a lender showing how much they may be willing to lend you, based on the information you have provided.
It is not a formal mortgage offer, and it does not guarantee that your mortgage application will eventually be approved. However, it is an important first step because it gives you a clearer idea of your budget before you start seriously looking at properties.
It can also show estate agents and sellers that you have already spoken to a mortgage adviser and that your finances have been assessed.
Whether you are a First-Time Buyer or looking to move from your current property, arranging an Agreement in Principle early can make the whole process much easier.
I help clients arrange Agreements in Principle across Romford, Hornchurch, Upminster, Brentwood, Chelmsford and Emerson Park, as well as throughout the UK.
If you’d like to see what it’s like working with me, take a look at my Recent Reviews page to read genuine feedback from clients I’ve helped with their mortgages and protection.
What is a Mortgage Agreement in Principle?
A Mortgage Agreement in Principle is a lender’s initial assessment of how much you may be able to borrow.
The lender will usually look at information including:
- Your income
- Your employment status
- Your regular financial commitments
- Your existing credit agreements
- The size of your deposit
- Your credit history
- Your age
- The proposed mortgage term
Based on this information, the lender may then confirm that they could be prepared to lend you a certain amount.
For example, a lender may issue an Agreement in Principle showing that they are potentially willing to lend you up to £300,000.
This does not mean that you must borrow the full amount. It also does not mean that the lender has fully approved your application.
It simply gives you an initial borrowing figure to work with.
Is an Agreement in Principle the same as a mortgage offer?
No. An Agreement in Principle is not the same as a formal mortgage offer.
An Agreement in Principle is normally completed before you have found a property. It is based mainly on your income, commitments and credit profile. A formal mortgage offer is issued much later in the process.
Before issuing a full mortgage offer, the lender will usually need to:
- Assess your full mortgage application
- Check your payslips or income evidence
- Review your bank statements
- Verify your deposit
- Complete a credit check
- Value the property
- Confirm that the property is acceptable security
A mortgage offer is therefore much more detailed and carries far more weight than an Agreement in Principle.
The Agreement in Principle is best thought of as an indication that your proposed mortgage appears possible, subject to full underwriting.
Do I need an Agreement in Principle before viewing properties?
You do not always need an Agreement in Principle before viewing a property, but having one can put you in a much stronger position.
Some estate agents will ask whether you already have one before arranging viewings.
Others may allow you to view a property but ask for proof of your Agreement in Principle before putting your offer forward to the seller.
Estate agents want to know that you are likely to be able to afford the property and that you are in a position to proceed.
Having an Agreement in Principle shows that you have already taken some sensible steps towards arranging your mortgage.
It can also help you avoid wasting time viewing properties outside your realistic price range.
Does an Agreement in Principle guarantee the mortgage?
No lender can guarantee a mortgage based only on an Agreement in Principle.
The lender has not yet checked everything in detail, and they will not normally have assessed the property at this stage.
A full mortgage application could still be declined for several reasons.
These may include:
- The income information being incorrect
- Undeclared credit commitments
- Problems shown on bank statements
- A change in employment
- A reduction in income
- A new credit agreement
- A lower property valuation
- Problems with the property
- Credit issues discovered during underwriting
- The deposit source not being acceptable
This is why it is important to provide accurate information from the beginning.
An Agreement in Principle based on incomplete or incorrect details may be of very little value.
Does an Agreement in Principle affect your credit score?
This depends on the lender. Some lenders carry out a soft credit search when completing an Agreement in Principle.
A soft credit search can usually be seen by you on your credit report, but it is not normally visible to other lenders and should not affect your credit score.
Other lenders may carry out a hard credit search. A hard credit search leaves a visible footprint on your credit report. Too many hard searches over a short period could make lenders concerned that you are applying for a lot of credit.
This does not mean that one hard search will automatically cause a problem, but it is sensible to avoid unnecessary applications.
Before submitting an Agreement in Principle, I will normally explain whether the lender is likely to complete a soft or hard credit search.
How long does an Agreement in Principle last?
The length of time an Agreement in Principle remains valid varies between lenders.
Many are valid for between 30 and 90 days.
Some may last longer, while others may need updating sooner.
If your Agreement in Principle expires before you find a property, it can often be completed again.
However, the lender may carry out another affordability assessment or credit search.
You should also arrange a new Agreement in Principle if your circumstances change.
This may include:
- Changing jobs
- Receiving a pay rise
- Reducing your working hours
- Taking out a loan
- Increasing credit card balances
- Having a child
- Changing the size of your deposit
- Finding a more expensive property
An Agreement in Principle is only based on your circumstances at the time it was completed.
What information do you need for a Mortgage Agreement in Principle?
The information required will vary slightly between lenders, but in most cases you will be asked to provide details about your income, employment, monthly commitments and the size of your deposit.
Typically, you’ll need to provide:
- Your annual income
- Your employment details
- Any overtime, bonuses or commission
- Existing loans or credit cards
- Monthly financial commitments
- Your estimated deposit
- Your address history
- Basic identification
At this stage, most lenders won’t ask you to upload documents, although they will usually require them when you submit your full mortgage application.
How much can you borrow?
One of the biggest advantages of obtaining a Mortgage Agreement in Principle is finding out roughly how much you may be able to borrow before you start viewing properties.
Every lender has different affordability calculations. While one lender may be happy to lend £300,000, another may only be prepared to offer £270,000, despite your circumstances being exactly the same.
That’s because lenders all assess things differently, including:
- Overtime and bonus income
- Self-employed income
- Contractor income
- Existing financial commitments
- Number of dependants
- Retirement age
- Credit history
- Mortgage term
Using a mortgage adviser allows you to compare those criteria and helps ensure you’re approaching the lender most suited to your circumstances.
Can you get a Mortgage Agreement in Principle with bad credit?
Yes, in many cases you can.
Many buyers assume that previous credit issues automatically prevent them from obtaining a mortgage. In reality, it depends on the type of credit issue, when it occurred and how the lender assesses your application.
Some lenders may still consider applicants who have experienced:
- Missed payments
- Defaults
- County Court Judgments (CCJs)
- Debt Management Plans
- Individual Voluntary Arrangements (IVAs)
- Historic payday loans
Every lender has different criteria, which is why choosing the right lender from the outset can make a significant difference.
Can self-employed applicants get an Agreement in Principle?
Absolutely. Being self-employed doesn’t stop you obtaining an Agreement in Principle, although lenders will assess your income differently depending on how your business operates.
They may use:
- Salary and dividends
- Net profit
- Average profits over two or three years
- Contractor income
- CIS income
Because every lender has different rules, obtaining advice before applying can help avoid unnecessary delays later in the process.
Can you have more than one Agreement in Principle?
Yes, but it isn’t always advisable. Some lenders complete a soft credit search, while others carry out a hard credit search.
Submitting several applications within a short period may result in multiple hard searches appearing on your credit file.
Instead of applying to several lenders yourself, it’s usually more sensible to identify the lender most likely to accept your circumstances before applying.
What happens after you’ve received your Agreement in Principle?
Once your Agreement in Principle has been issued, you can begin searching for properties knowing your likely borrowing limit.
When your offer is accepted, you’ll then move on to the full mortgage application.
At that stage, your lender will usually request documents such as:
- Payslips
- Bank statements
- Proof of deposit
- Identification
- Proof of address
- Details of the property
- Solicitor information
The lender will then carry out a valuation of the property before deciding whether to issue your formal mortgage offer.
Why use a mortgage adviser?
Although it’s possible to obtain a Mortgage Agreement in Principle directly from a bank, that lender will only assess you against its own lending criteria.
As an independent mortgage adviser, I can compare lenders across the market and recommend those most suited to your circumstances.
This can be particularly valuable if you’re:
- A First-Time Buyer
- Self-employed
- A contractor
- Using a gifted deposit
- Buying with a small deposit
- Moving home
- Concerned about previous credit issues
Choosing the right lender from the beginning can reduce delays and improve your chances of securing the mortgage you need.
Frequently Asked Questions
How quickly can I get a Mortgage Agreement in Principle?
In many straightforward cases, it can be arranged on the same day, with some lenders providing a decision within minutes.
Does an Agreement in Principle cost anything?
Almost all lenders provide an Agreement in Principle free of charge.
Can an Agreement in Principle be declined?
Yes. This may happen because of affordability, credit history or information discovered during the lender’s assessment.
Can I make an offer without one?
Yes, although many estate agents prefer buyers to have an Agreement in Principle before submitting an offer.
Do I need to find a property first?
No. Most people arrange an Agreement in Principle before they begin viewing properties.
Final thoughts
A Mortgage Agreement in Principle is one of the simplest ways to prepare for buying a home. It gives you a realistic idea of your borrowing potential, demonstrates to estate agents that you’re a serious buyer and can make the purchasing process much smoother.
Whether you’re buying your first home or moving to your next property, obtaining the right Agreement in Principle with the right lender can save time and prevent unnecessary complications later.
I provide mortgage advice to clients across Romford, Hornchurch, Upminster, Brentwood, Chelmsford and Emerson Park, as well as throughout the UK.
If you’re looking to buy your first home, visit my First-Time Buyer page for more helpful guidance. If you’re planning your next move, you’ll also find useful information on my Home Mover page.
If you’re ready to take the next step, I’d be happy to help you arrange your Mortgage Agreement in Principle and discuss your borrowing options.
