Mortgage agreement in principle

What’s a mortgage agreement in principle?

A mortgage ‘agreement in principle’ (AiP) is a document that gives you written indication of how much a mortgage provider might be prepared to lend you based on your personal financial circumstances.

It’s sometimes also called a ‘decision in principle’ (DiP) or ‘mortgage promise’.

An agreement in principle is the first step to getting a mortgage as it lets you know how much you could potentially borrow to spend on a new home.

That means you can house-hunt within your price bracket. 

How to get a mortgage in principle

You can apply for an AiP on most lenders’ websites. 

Some lenders might prefer that you apply for an AiP in branch or over the phone.

Getting an AiP doesn’t mean you’re tied or committed to the lender you got it from – you can still get your actual mortgage from a different provider when the time comes.

What do you need for a mortgage agreement in principle?

You’ll need to fill out a form, online or in branch, giving details of your:

• Income

• Outgoings, including any credit agreements

• Addresses for the last three years

How long does an AiP take?

Filling out an online AiP form can take as little as 15 minutes to complete and you usually get a decision in minutes.  

Applying for an AiP in branch or on the telephone may take a little longer, but you should still get a decision on the same day.

Do I need an AiP to make an offer on a property?

Not necessarily. But it does mean that you can move quickly to make an offer as soon as you find a property you love.

When you can show an estate agent and seller you have an AiP, it reassures them that you are a serious buyer who can get a mortgage.

It could also prove to be useful as a bargaining tool. When a seller sees that you have an AiP, they may be more open to negotiate on price with you.

Will an AiP affect my credit rating?

When mortgage lenders consider you for an AiP, they only do a soft credit check, confirming certain details on your form with credit reference agencies. So it won’t affect your credit score. 

Lenders will only run a full credit check when you actually apply for a mortgage.

Can I get an AiP if I’ve had money problems in the past?

It may be possible to get an AiP if you’ve had adverse credit issues. Some lenders might need to ask some extra questions about your application before they offer you one. 

Even if you’ve had credit problems in the past, it’s a good idea to get an AiP before you start house-hunting so you have a clear idea of whether you will be accepted for a mortgage or not. 

Factors that can influence whether you’re accepted for an AiP include:

• How long ago your bad credit issues occurred
• Whether or not you’ve repaid some or all of your debts
• More serious issues such as house repossession or bankruptcy

Speak to a mortgage broker to find out what your chances are of getting a mortgage with your credit history. 

Does an AiP guarantee I’ll get a mortgage?

Getting an AiP from a lender doesn’t guarantee that you’ll be offered a mortgage. It’s a statement to say how much they might be willing to lend. 

When you make a full application for a mortgage, the lender will need to get a fuller picture of your finances and run a more thorough credit check before they make a decision.

If they find something that doesn’t meet their mortgage criteria, then your full application can be declined. 

Reasons could include a change in your personal circumstances since applying for the AiP, such as taking out a new form of credit, or recently missed repayments. 

Lenders may also run checks with multiple credit reference agencies. So new information that hadn’t appeared during the initial check could show up.

You could also find that, even if your mortgage application is successful, you may not be offered the amount indicated in the AiP. 

Mortgage providers also run what’s known as an affordability check which will scrutinise your income and outgoings. The amount they ultimately lend you will be based on what they believe you can afford to borrow. This may be less (or more) than was indicated in your AiP.  

How long does a mortgage in principle last?

An AiP is usually valid for between 60-90 days.

If there are any changes to your circumstances during this time, like a drop in your income, an increase in regular spending, or some new debts, it’s a good idea to complete a new AiP. 

What’s the difference between a mortgage in principle and a mortgage offer?

A mortgage in principle is an indication of how much a lender might be willing to offer you. 

A mortgage offer is an official document with confirmation from the lender that they will provide you with a mortgage for a particular property. 

To get a mortgage offer, you need to complete a full mortgage application, where full credit and affordability checks are carried out.

Can you get a mortgage agreement in principle when you’re a first-time buyer?

Yes. In fact, getting an AiP can be especially useful for first time buyers to be taken seriously.

Some estate agents will ask to see an AiP before they take a home off the market because they see it as evidence that you’re likely to be able to get a mortgage to buy the property you’re interested in.