Mortgage agreement in principle
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What is a mortgage agreement in principle (AIP)?
An agreement in principle (AIP) is a theoretical agreement from a lender stating how much they would be willing to lend, assuming you meet their criteria on application. Sometimes known by other names, such as; a decision in principle (DIP), a mortgage in principle (MIP) or a mortgage promise, this useful document provides a more accurate loan quote than a mortgage affordability calculator.
You’re not committed to that lender, so you can still change your mind if you find a better deal elsewhere. Likewise, this should not be considered a formal offer, as you could still be turned down at application stage.
Providing as much accurate information as possible to the lender or broker arranging your AIP can reduce the chance of this happening, however.
Why get an agreement in principle?
It’s a really useful tool for those searching for their ideal home, especially first-time buyers, as it can help focus your search on affordable properties only. You won’t even need to undergo a credit check to get one, as most lenders only require a soft search for an AIP, meaning no trace is left on your credit file.
Another benefit of an AIP is that it provides a strong indication to sellers that you’re a serious buyer who could, in theory, afford to buy their property. Estate agents are also increasingly keen to see an AIP before they'll arrange a viewing, with some insisting that only those with a decision in principle in place can do so.
When should I get a mortgage agreement in principle?
It’s a good idea to get one as soon as possible when you decide to look for a home, as this will save you the disappointment of looking at properties that are out of reach. It can also prevent any potential delays in viewing properties, should the estate agent insist that you have one.
It’s possible to get a mortgage agreement in principle when you’ve already found a property, but already having one in place can speed up the mortgage application process once you’ve chosen your home, as the lender will already have your information.
What information do I need to get a mortgage agreement in principle?
To get the most accurate mortgage in principle it’s best to supply all of the information you’d need to make a full application, as this reduces the risk of any nasty shocks when the lender processes your full application.
If you’ve got a less than pristine credit history, for example, it’s worth highlighting this to the broker from the outset. It’s better for them to take this into consideration early on, than for it come out in the credit search on application.
If you’re applying jointly with others, it’s important to ensure that you have the following information for each applicant when you apply for an AIP:
Personal identification - name, date of birth, passport or similar official identification
Income details - payslips covering at least three months if you’re employed and tax calculations for at least 12 months if you’re self-employed, although most lenders will be looking for two to three years for self-employed mortgage applicants
Address details - full address details to cover the last three years, with proof if possible. This will be requested at application stage to it’s worthwhile having it to hand
Details of outgoings - If possible you should provide bank statements, as these will be requested at application stage. If not, a full list of your current outgoings and financial commitments, including debt repayments will be needed
Credit report - It can save a lot of time to provide your broker or lender with a recent credit report, which can be obtained for free from a number of credit referencing agencies, such as Experian. It's unlikely you'll get a mortgage without a credit check, so it's a good idea to be aware of what's on yours before you apply!
What happens after getting an agreement in principle?
Once you’ve got an AIP that you’re happy with, it’s time to start looking for your new home. When you find a home, you’ll need to let your broker or lender know so that the formal application process can begin.
Be sure to keep in mind the validity of your mortgage in principle, as they do expire. Whilst you can always get another one, this could delay your ability to move quickly when you’ve found the ideal property.
How long does an agreement in principle last?
This varies slightly from one lender to the next, but typically they last for 90 days. This means that unless any of your personal circumstances change within that three month period, you can be fairly confident about the property value you can afford.
Keep in mind that if you need to apply for a new AIP because it’s taking longer than anticipated to find a suitable property, the amount you could borrow may have changed, even if your personal circumstances haven’t. This is because changes to the Bank of England base rate and other industry factors, such as property values, can impact the LTV lenders are willing to offer at any time.
Will getting an agreement in principle affect my credit score?
In the vast majority of cases, no it won’t. Most lenders use a ‘soft search’ during a decision in principle application, which leaves no mark on your credit file. If you’re concerned about this, you can ask the mortgage broker or lender carrying out the application whether they will do a full credit search or not.
Most lenders only carry out a full credit search when they process the formal mortgage application. It’s always best to be forthcoming about any potential issues on your credit file at AIP stage, however, as this can prevent delays and disappointment when you apply for your mortgage in full.
Does an agreement in principle guarantee a mortgage offer?
No it doesn’t, it’s simply a theoretical agreement, assuming you meet the lender criteria once they’ve assessed your supporting documents and pass the credit check on application.
There are multiple benefits to securing an AIP, however, as outlined above, and they are quick and free to apply for. This also means that you are not bound by one, so you won't have to miss out on a better deal if you find one later in your search.
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Mortgage agreement in principle FAQs
What is the difference between a mortgage in principle and a mortgage offer?
A mortgage agreement in principle is a sort of pre-offer, which is not guaranteed until you go through the full mortgage application process and receive a formal mortgage offer.
Lenders can change the terms of your AIP at application stage, especially if any of your personal circumstances have changed, so it does not guarantee that particular lender will offer you a mortgage.
Of course, having a mortgage application refused by one lender does not mean that you won’t be able to get one with another. A mortgage broker can help you to approach the lender most likely to approve your application first time.
Why might your mortgage offer differ from your decision in principle?
There are a number of reasons this may happen, including, but not limited to:
Your financial circumstances have changed since you applied for the AIP
Your credit file reveals information that changes how risky the lender considers your application
The lender’s valuation of your property is more or less than your AIP reflects
Market changes - such as when the mini-budget in Autumn 2022 led to lenders restricting their LTVs and tightening their criteria generally
The best way to avoid this is to move quickly when you have an AIP in place. It’s not always possible to find your perfect home quickly, of course, so keep in mind whether you’ll need a new AIP before you continue your search.
Why would a mortgage in principle be declined?
If a lender can see from your initial information that you are unlikely to meet some of their criteria or pass a credit check, it’s unlikely that they will issue an agreement in principle.
This is a good indication that you are possibly not yet mortgage ready, and it might be best to speak to a mortgage broker, who can help you to prepare for a successful application.
Is a decision in principle different from a mortgage agreement in principle?
No, they are two ways of describing the same thing. In fact, there are a number of different ways that lenders refer to them, including:
Agreement in principle (AIP)
Mortgage in principle (MIP)
Mortgage agreement in principle
Decision in principle (DIP)
Mortgage promise
Approval in principle
Can I get more than one agreement in principle (AIP)?
Yes it’s possible to get them from a number of lenders to see which one would potentially offer you the best terms.
However, it’s usually quicker to go to a broker who can look at this information for you and help you choose the most suitable lender before you apply.
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