What is an agreement in principle?
An agreement, in principle, is a pre-approval offered by a mortgage provider which outlines how much you may be able to borrow.
The mortgage provider runs a credit check and an affordability assessment to determine the amount you are eligible to borrow. They are also otherwise referred to as a decision in principle or a mortgage promise.
How long is an agreement in principle valid?
Most agreement in principles are valid for 3 months.
Do I need an agreement in principle?
Whilst it’s not a legal requirement to have an agreement in principle to view or offer on a property, it will certainly help your negotiating position and show the estate agent and vendor that you are a serious buyer and have been pre-approved.
It will also provide you with peace of mind knowing you’ve been pre-approved; it can be quite stressful back-peddling and getting one once your offer has been accepted.
What if circumstances change since securing an agreement in principle?
Mortgage applications are based on the information at the time of application, therefore, if your circumstances have changed in the time between securing an agreement in principle and applying for a mortgage, you may not be accepted.
If, for example, you receive variable income, like overtime, commission or bonuses, your application will usually be based on the 3 months prior to your full mortgage application rather than the date of your agreement in principle.
If your income is varied, it’s worth providing your mortgage advisor with up to payslips each month after you have secured an AIP to see how your affordability may be impacted.
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What documents do I need to provide to secure an agreement in principle?
The documents needed for an agreement in principle usually include:
- Proof of identification: You’ll need to provide a valid form of ID such as a passport or driving license.
- Proof of address: You’ll need to provide a document that shows your current address, such as a utility bill or bank statement.
- Bank statements: Lenders will typically ask for at least three months’ worth of bank statements to verify your income and expenses.
- Proof of income: If you’re employed, you’ll need to provide recent payslips, P60, or a letter from your employer confirming your income. If you’re self-employed, you’ll need to provide SA302s and/or accounts to show your income.
- Details of your financial commitments: You’ll need to provide information about any outstanding loans, credit cards, or other financial commitments you have.
Does applying for multiple agreement in principles damage your credit score?
Each time you run an agreement in principle, it will run a credit check, running multiple credit checks can affect your credit score, however lots of lenders run ‘soft’ credit checks, which has a far lesser impact on your credit score, and it’s not uncommon for customers to run a few prior to applying for a mortgage.
Will I receive a mortgage offer if I receive an agreement in principle?
If you’re using a mortgage advisor like Strive to secure an agreement in principle, they will vet the application as best they can to ensure you have the best possible chance of success when applying for the full application, however there are no guarantees having an AIP will result in you securing a mortgage offer.
Your AIP is based on your own circumstances rather than being property specific, therefore, you may offer on a property type that the lender is unwilling to lend on; it’s therefore worth checking with your mortgage broker to see if there are any specific property types the lender won’t consider.
Frequently asked questions about agreement in principles
In a nutshell, no. Lenders are not obliged to offer mortgages when they have previously agreed on an AIP. This could be for several reasons, change in circumstances, lender criteria, unacceptable property types or in the cases of fraudulent applications.
In most cases, no. Most lenders only reserve an interest rate at the point of full application. Nationwide is a notable exception, which allows you to reserve an interest rate for up to 90 days, so long as the mortgage offer is issued within the 90 days and you borrow within the same loan-to-value thresholds as you reserved the rate.
No, an agreement in principle does not tie you to using that lender or product type. In most instances, customers will secure an agreement in principle with a lender that only carries out a ‘soft’ credit check simply to provide evidence they can secure a mortgage, then re-assess once they have had an offer extended on a property.
Yes, this is usually a fairly straightforward process, the mortgage broker will update any documents and information held on file and re-run a fresh credit check. The agreement in principle, will usually be extended by a further 3 months.