What is mortgage agreement in principle?

Sometimes known as a decision in principle (DIP), a mortgage agreement in principle is an indication of what you may be able to borrow from a mortgage lender.

Agreements in principle are a great way to help you budget for your property purchase and in this guide, we’ll explain even more about them and how to apply.

The different types of mortgage agreements in principle

Most mortgage agreements in principle work in the same way, whether you’re buying your next home, your first home, or a property for any other reason – and regardless of where you live in the UK.

However, mortgage agreements in principle can be especially important if you’re purchasing a buy-to-let or Shared Ownership property:

1. Buy-to-let mortgage agreement in principle

Competition for buy-to-let purchases can be intense between property investors.

So, by having an agreement in principle, you’ll be able to show you’re a credible investor who is ready to proceed.

2. Shared Ownership mortgage agreement in principle

If you’re looking to buy a property through Shared Ownership, a mortgage agreement in principle can be helpful.

In fact, many housing associations will require an agreement in principle before offering you a property.

If you already own a property through Shared Ownership and you want to purchase a bigger share, you can also obtain a mortgage agreement in principle in the same way.

Getting an agreement in principle

Applying for a mortgage agreement in principle is a reasonably straightforward process.

The first thing to decide is whether you’ll go directly to a lender to apply, or through a mortgage broker.

A broker may have access to more of the mortgage market and will be able to help you decide the right mortgage for your needs.

Either way, though, applying for an agreement in principle is normally free.

Once you’ve decided on a lender or broker, you’ll need to provide some personal details, as well as information on your income and expenditure.

What you’ll need to get a mortgage agreement in principle

To apply for a mortgage agreement in principle, you’ll usually need:

  • Photographic ID via a passport or driving licence
  • Accurate details about your income, including salary and any other earnings, via payslips, accounts or an SA302 tax calculation if you’re self-employed
  • Information on your regular outgoings, including existing credit agreements like car loans, via bank statements
  • Your address history for the past three years

Be prepared for a credit check

Before completing your agreement in principle application, find out from your lender whether they’ll perform a ‘hard’ or ‘soft’ credit check.

A hard credit search will leave an imprint on your credit file, which could lower your credit score if it’s one of several hard searches over a short period of time.

A soft search only shows your lender the basic information on your file and no details of individual credit agreements.

Most lenders will perform a soft search, but always establish this before you apply.

When you should get an agreement in principle

The best time to arrange a mortgage agreement in principle is just before you start searching for properties.

Having a valid agreement in principle shows sellers and estate agents that you’re a serious, proceedable buyer and can put you in a good position when making an offer.

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

An agreement in principle is an indication of what you’ll be able to borrow if your full mortgage application is successful, but it’s not a guarantee.

A mortgage offer, on the other hand, comes after you’ve completed your application and is full confirmation of the amount a lender will loan you.

How long does it take to get a mortgage agreement in principle?

It’s possible to get a mortgage agreement in principle in as little as 15 minutes online.

But in order to obtain one that quickly, you’ll need to have all the documents and information your lender needs and there would need to be no issues.

If your lender needs to take a closer look at the paperwork you’ve supplied, or your credit file flags up any concerns, it can take a few hours or even a few days to get your agreement in principle.

Does an agreement in principle affect your credit score?

Most mortgage lenders will only carry out a ‘soft’ credit check when you apply for an agreement in principle.

A soft check only reveals certain information and is no different to you checking your own credit file.

A soft search won’t leave a record on your file, either.

If a lender wishes to carry out a ‘hard’ credit search when you apply for an agreement in principle, this will leave a record on your file which could affect your credit score

Do you need a mortgage agreement in principle to make an offer?

You don’t need a mortgage agreement in principle to make an offer on a property.

But having one in place is definitely worthwhile and can put you in a strong position with sellers and estate agents.

Having an agreement in principle:

  • Shows you’re serious about buying
  • Could speed up the sales process as your lender will already have lots of the documentation and information they need to process your full application

How long does a mortgage agreement in principle last?

Mortgage agreements in principle generally last between 60 and 90 days but can last only 30 days.

If any of your details or circumstances change during that period, it’s always a good idea to check with your lender and request another agreement in principle if one is needed.

And if you haven’t found a property to buy in the timeframe your agreement in principle is valid for, you may have to request another one.

However, if your circumstances remain the same, this should be a straightforward process if you remain with the same lender.

Does an agreement in principle guarantee a mortgage?

Your full mortgage application can still be declined even if you have an agreement in principle, as it’s not a guarantee.

However, having a mortgage agreement in principle puts you in a great position as a buyer – because your seller’s estate agent and the vendor themselves will know you’re serious about buying and should be proceedable.

Also, if you have had issues securing credit in the past, obtaining an agreement in principle can provide you with added peace of mind that your purchase should be achievable.

Finally, bear in mind if you are not in a position to progress your agreement in principle on to a full application for several months, interest rates may change.

Can you fail a mortgage in principle?

It’s certainly possible for an agreement in principle application to be declined.

If this happens, the best step is to speak to your lender and ask for their reasons in writing.

This can help you to understand why your agreement in principle application was declined and then take steps, where possible, to rectify the issue.

A more common scenario is for an agreement in principle to be approved but the full mortgage application declined.

Reasons for this could include:

  • Your lender’s hard credit search for your full application revealing some concerns or changes to your credit history, such as missed payments or additional credit
  • Your income changing during the time between you applying for your agreement in principle and completing your full application

Further reading…

Four tips to help you save a house deposit

Everything you need to know about conveyancing

Your key stamp duty questions answered

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