What is an ‘agreement in principle’?
An agreement in principle, also known as a ‘AIP’, ‘decision in principle’, ‘mortgage promise’ or a ‘mortgage in principle’, is a certificate or statement from a lender to say that, ‘in principle’, they would lend you a certain amount of money. When you apply for an AIP the lender will check your credit file. This is to establish whether you’re eligible to borrow from them and if they’re happy to lend you the amount you need. Whilst you don’t have to get an agreement in principle, it can help when you’re house-hunting.
It’s important to remember that an agreement in principle is not a guarantee, mortgage offer or an official confirmation that you have a mortgage. To get that, you’ll need to go through the full application process. This will be where the lender will look at your earnings and credit history in more detail. They may also decide not to lend to you at this point.
Most lenders will run a ‘hard’ credit search before offering you an agreement in principle. A ‘hard’ search will leave a mark on your credit file. This shouldn’t be too problematic if you only apply for one or two AIPs. However, having several credit application searches on your file in a short period of time can serve as a red flag to anyone who might be deciding whether to lend to you in the future. There are some lenders who will only run a soft search, which doesn’t impact your credit rating. Talk to a broker to find out the best lender to apply to based on your personal circumstances. And one final word of warning: don’t base your decision on who to get your AIP from based on the deals they’re offering, as these might be different by the time you’re actually ready to buy a house.
How do you get an agreement in principle?
To get an agreement in principle, you’ll either need to approach a mortgage lender directly or via a Mortgage Broker. We’d strongly recommend speaking with a Mortgage Broker as we have a wide access to the market and exclusively available deals. Not to mention that we take all of the stress and worry about filling out any forms and official documents.
You won’t need to go through the full application process to get an agreement in principle. This will come later, when you’ve had an offer on a property accepted. Even though it’s not a full mortgage application, you will still need to provide information to get an agreement in principle. Generally, you’ll be asked to provide:
- Your name
- Date of birth
- Three years of address history
- Your income and expenditure
At this stage, you can just provide the information alone without supporting documents. But bear in mind that you’ll need those when you make your full mortgage application.
When should I get an AIP?
Estate agents will often want to ensure that you will be able to get a mortgage on a property before you attend viewings or put in an offer. So, it can be very helpful to have an agreement by this point. A Mortgage Broker comes in handy as you will be provided with advice on products and lenders before you proceed with an agreement in principle. It’s important to take time to consider this advice, as getting an AIP can leave a soft or hard footprint on your credit file. It’s also important that you don’t base your decision on who to get your AIP from based on the deals they’re offering; as these might be different by the time you’re actually ready to buy a house.
Most lenders will run a ‘hard’ credit search before offering you an agreement in principle. This shouldn’t be too problematic if you only apply for one or two AIPs. However, having several credit application searches on your file in a short period of time can serve as a red flag to lenders. There are some lenders who will only run a soft search, which doesn’t impact your credit rating. Talking to a Mortgage Broker will help you find out the best lender to apply to based on your personal circumstances.
However, if you are remortgaging, there is less of a need for this information; you would submit an agreement in principle once you’ve chosen a lender and product.
How can an agreement in principle help?
The size of your agreement in principle can be a helpful indicator of how much you’ll be able to borrow. You can use this to search for a property in your price range. If you have had credit problems in the past, or a limited credit history and aren’t sure what a bank or building society might lend to you, an agreement in principle could give you added reassurance around your borrowing prospects.
Overall, having an agreement in principle shows that you can, in theory, afford to buy a property. This can make you a more attractive buyer and stand you apart from other prospective buyers.
For more information and to start your search for a new home, contact us today to talk to one of our mortgage specialists!
