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If you’re about to embark on your search for a new home or perhaps looking to remortgage, one of the first steps in the process is to secure an agreement in principle, otherwise known as an AIP or decision in principle of mortgage promise. In this guide, we explain the benefits of having one, the considerations, and the process.
What is an AIP?
An AIP, or Agreement in Principle, is a pre-approval from a mortgage lender. It involves a check of affordability and credit score. Some lenders perform soft searches, while others conduct hard searches. If you obtain an AIP through a broker or the bank, they will ensure that your criteria fit. However, if you apply directly online, it may not undergo a thorough check. While an AIP does not guarantee approval, it serves as a reference and starting point in the mortgage process.
Benefits of an AIP
The benefits of obtaining an AIP include providing reassurance and peace of mind, as it signifies that you have passed the initial stages of mortgage approval, making you more confident when making offers on properties. It can also strengthen your negotiating position and demonstrate to sellers and estate agents that you are a serious buyer.
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In some cases, agents may require an AIP or proof of being in the process of obtaining one before allowing property viewings. Importantly, obtaining an AIP does not commit you to a specific lender or product. For example, securing a Halifax AIP initially does not prevent you from seeking better deals with another lender at the point of full application.
Agreement in principle Credit checks
When carrying out an Agreement in Principle, lenders will conduct a credit check. Halifax’s credit check is a ‘soft’ credit check, which leaves no impact on your credit report and will not affect your ability to apply for other mortgages.
A full hard search would be conducted at the point of full application, once you have had an offer accepted. Some lenders conduct hard searches on AIPs. It’s important not to apply for too many AIPs because it can impact your credit, particularly those that carry out hard searches. That said, it’s not uncommon for people to apply for a few AIPs from when they start their search to when they fully apply.
What is the process of getting an agreement in principle?
The process for securing an AIP involves approaching a broker or mortgage advisor and gathering documents such as ID, proof of address, and income proof.
You’ll explore and discuss your situation, including income, outgoings, and preferences, to assess affordability and determine how much you can borrow. A credit check is typically run during this process, and the outcome may result in acceptance, referral, or decline.
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Usually, you’ll receive an instant decision. If successful, you’ll be issued a certificate confirming how much you can borrow; for example, Halifax’s AIP is valid for 3 months. Once you’ve found a property and had an offer accepted, you’ll speak to your broker again to review and check which lender is still the most suitable option.
Common misconceptions of Agreement in principle
– Guarantees you mortgage acceptance: It doesn’t. Affordability is based on the lead-up to applications, not the AIP. If circumstances or income change, you may not get the same terms as the AIP. It’s important to keep in regular contact with your broker after securing an AIP.
– Your interest rate is secured: It’s not. Usually, rates are only secured on full application, except with a few lenders who may offer rate locks on AIPs.
– You can’t change the borrowing amount: You can. For example, if you get an AIP for £200k, you can take up to £200k but can opt for less.
What documents do I need for an agreement in principle?
The usual documents required for an AIP include:
– ID (such as a passport or driver’s license)
– Proof of address (such as a utility bill or bank statement)
– Proof of income (such as payslips or tax returns)
– 3 months’ bank statements.
How long is a Halifax Agreement in principle valid for ?
A Halifax AIP is typically valid for 3 months. However, they can usually be extended with relative ease assuming no changes to circumstances. Once you apply for a full mortgage application, you will be granted a further 6 months of validity.
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What to do if your decision in principle is declined by Halifax?
If your decision in principle is declined by Halifax, here’s what to do:
1. Find out why: Determine if the decline is due to credit issues, criteria mismatch, or property-related issues.
2. Check credit report: Review your credit report and address any issues if necessary.
3. Shop around: Speak to brokers and explore other lenders. Criteria varies enormously among lenders, so some may view your application more favorably than others.
4. Put more deposit down: Consider putting down a larger deposit. Sometimes, increasing your deposit and reducing the loan-to-value ratio can improve your chances of approval.
5. Appeal: As a last option, consider appealing if you feel you have grounds to do so. However, the success rate for appeals is usually low.
Can you extend the Halifax Agreement in principle?
Yes. It’s possible to extend your Halifax AIP if your current one expires after 3 months. A new credit check will be conducted and new documents required to assess.
How can a broker help?
Navigating the ever-changing mortgage world can be a challenge, especially if you’re new to it or don’t have the right support. At Strive, we are experts in all things mortgages and would love nothing more than to accompany you on your homebuying journey. We have access to a wide range of lenders and can advise on options with Halifax and elsewhere.”
FAQ’s
– How long does it take to get an AIP? Usually instantly, and may take 30-60 minutes with the advisor.
– Can a mortgage be declined after an agreement in principle? Yes, if you don’t have good credit or meet criteria. Working with a mortgage broker will minimise the chances of decline by ensuring you’re placed with the right lender for your circumstances
– How long does a Halifax AIP last? Typically 3 months. They can usually be extended
Does it cost to get an AIP? There’s usually no charge for an AIP, certainly not with Strive anyway. It’s worth checking with the broker you end up working with.
– How quickly can you get a decision in principle? Usually the same or next day from receipt of documents/information.
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For more information on agreements in principles, please contact a member of the Strive team, by emailing [email protected] or call us on 01273 002697.
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