Are you looking to buy a house?
Getting an agreement in principle for a mortgage from a bank is an important step in achieving this.
Keep reading to find out what it is and how to get one.
What is an agreement in principle for a mortgage?
An agreement in principle (AIP) is an agreement that indicates how much a lender (usually a bank) is willing to lend to an individual or organisation.
It is typically the first step people take to get a new mortgage to buy a house. In these cases, it is often referred to as an agreement in principle for a mortgage or a mortgage in principle (MIP).
The bank will not complete an in-depth background check (e.g., combing through financial histories) to provide this figure.
They will look at salary or revenue and calculate how much this would typically entitle the borrower to borrow. For individuals, it is often four or five times your annual salary.
An agreement in principle for a mortgage is not the same as an official mortgage offer (we have explained the difference below).
Agreement in principle vs mortgage in principle or decision in principle
The phrase ‘agreement in principle’ is often used interchangeably with ‘mortgage in principle’ (MIP).
While MIP is a specific type of AIP, some subtle differences exist – the primary one being purpose.
An AIP can apply to various types of funding for businesses or personal loans, while MIP refers explicitly to mortgage loans.
When should I get an agreement in principle?
Lots of people get an agreement in principle before they enter the housing market and start looking at properties.
Although this is not required, some sellers might not take you seriously unless the lender has quoted you a number.
An agreement in principle can be beneficial for you, too. You may not know how much you can borrow until this figure is quoted, which may be higher or lower than expected.
This enables you to accurately calculate how much you can afford when combining the mortgage with your deposit.
How do I get an agreement in principle?
There are two main methods of getting an agreement in principle:
- You can speak to a mortgage broker, who can seek out the best deals on your behalf
- You can contact a lender directly
Many banks enable you to fill out a form online, giving you a figure they’d be willing to lend.
This process does not involve a hard credit check, meaning that it won’t affect your credit score.
Is an agreement in principle legally binding?
No, an agreement in principle is not legally binding. If circumstances change, the lender does not have to follow through with the offer.
And equally, you can switch to another bank if you find a better deal elsewhere.
Does an agreement in principle affect my credit score?
No, an agreement in principle does not affect your credit score. However, it may consider your credit score when calculating the amount you can borrow.
How long does an agreement in principle last?
In most cases, an agreement in principle lasts for 90 days.
This is the timeframe used by some of the largest banks in the UK. However, you should check the specific terms of any lender you get a quote from, as they could vary.
Agreement in principle vs. mortgage offer
An agreement in principle indicates how much the bank would be willing to lend you if everything is in order.
By contrast, a mortgage offer is a written offer that becomes legally binding once you sign it and the deal goes through as expected.
A mortgage offer takes in many more details about your circumstances. For example, it will look at:
- Whether they agree with the valuation of the house you’re buying
- Your expenses
- Your job history – including how secure your role is. For example, if you’re self-employed, they will usually want you to have three years of accounts
- The condition of the house itself
- Bankruptcy history, where applicable
There are many examples of lenders reducing their mortgage offers after disagreeing with the value of the house you buy.
After all, they want their money to be safely invested and cannot afford the property value to drop.
The mortgage offer becomes legally binding once you complete the Exchange of Contracts.
Why is an agreement in principle useful?
An agreement in principle is useful because it ensures that sellers take you seriously, and it also enables you to budget for the property price that you can afford accurately.
By combining the proposed mortgage with your deposit, you can set your maximum range and ensure that all houses you look at are within that figure.
A mortgage broker may be able to help you find the best mortgage deals possible – speak to one if you need guidance with this.
Will sellers view me favourably if I have an agreement in principle?
In most cases, yes. Lots of people who view properties are time wasters and aren’t seriously considering purchasing the house.
If you have an agreement in principle, it shows that you are serious about entering the market and are more likely to be a trustworthy buyer.
Is an agreement in principle available for first-time buyers?
Yes, and in many cases, you are encouraged to get one. With no properties to sell, you rely on a mortgage and any deposit to pay for your first house.
With the AiP, everyone involved will be reassured that you can finance your move.
Do I need an agreement in principle to get a mortgage offer?
No, a lender will still give you an official mortgage offer even if you did not agree in principle beforehand.
Will all lenders give me the same agreement in principle?
Not necessarily. Each bank has its own lending criteria, meaning some will be more open to risk than others.
Therefore, it is recommended that you shop around to get the best deals (and speak to a mortgage broker) as you may receive a higher agreement in principle offer from different banks.
How many agreements in principle can I have at one time?
According to most sources and industry experts, the number of principle agreements that can be made at one time is unlimited.
Do I need an agreement in principle to remortgage?
You don’t need an agreement in principle to remortgage, but it is possible to get one.
As outlined above, this could clarify your circumstances and how your repayments might improve by remortgaging.
How long does it take to apply for an agreement in principle?
Applying for an agreement in principle only takes a maximum of one hour with most banks.
This is because they do not require huge amounts of information – just the bare essentials is required.
Indeed, Lloyds Bank states it should only take fifteen minutes to complete your agreement in principle application.
How long does it take to get an agreement in principle?
You will often receive your agreement in principle instantly by filling out an online form.
The online system will calculate your ability to afford automatically based on the information you’ve entered and give you this number immediately.
With some banks, your agreement in principle can take a few days to come through, perhaps because they want a member of staff to double-check it first.
What Sold can do for you
If you are looking to sell your house in order to finance a new property, contact the expert team at Sold.co.uk.
We offer an instant valuation via our value my house calculator. We can also guarantee a quick house sale and sell your house for free, enabling you to get moving on your property dreams. Fast.
