What is an 'agreement in principle' (AIP)?
An agreement in principle, also known as a 'decision in principle', a 'mortgage promise' or a 'mortgage in principle', is a certificate or statement from a lender to say that, ‘in principle’, they would lend you a certain amount.
When you apply for an AIP the lender will check your credit file to establish whether you're eligible to borrow from them and if they are happy to lend the amount you need.
You don't have to get an agreement in principle, but it can sometimes help when you're house-hunting (see 'How an AIP can help', below).
When we surveyed over 3,000 homeowners in July 2019, 53% said they got an agreement in principle before applying for their mortgage. Some 25% said they didn't know or couldn't remember getting one, and only 25% said they definitely didn't get one.
The number was highest for first-time buyers, of whom 62% said they took out an AIP before buying their home.
It's important to remember that an agreement in principle is not a mortgage offer or an official confirmation that you have a mortgage. To get that, you'll need to go through the full application process.
How do you get an agreement in principle?
To get an agreement in principle, you'll either need to approach a mortgage lender directly or via a mortgage broker.
You won't need to go through the full application process to get an agreement in principle. This will come later, when you've had an offer on a property accepted.
Even though it's not a full mortgage application, you will still need to provide information to get an agreement in principle.
Generally, you'll be asked to provide:
- Your name
- Your date of birth
- Three years of address history
- Your income and expenditure
At this stage, you can just provide the information alone without supporting documents. But you will need those when you make your full mortgage application.
When should I get an agreement in principle?
Estate agents will often want to ensure that you will be able to get a mortgage on a property before you put in an offer, so it can be helpful to have an agreement by this point.
Make sure you've taken advice on products and lenders before you proceed with an agreement in principle, as getting one can leave a soft or hard footprint on your credit file.
If you are remortgaging, there is less of a need for this information, so you would submit an agreement in principle once you've chosen a lender and product.
Having a decision in principle shows that you can, in theory, afford to buy a property. This could make you a more attractive buyer and stand you apart from other prospective buyers.
The size of your agreement in principle can be a helpful indicator of how much you'll be able to borrow. You can use this to search for a property in your price range.
If you have had credit problems in the past, or if you have a limited credit history and aren’t sure what a bank or building society might lend to you, an agreement in principle could give you added reassurance around your borrowing prospects.
- Find out more: bad credit mortgages
Agreements in principle: what to keep in mind
A decision in principle is not a guarantee. When you go through the full application process, the lender will look at your earnings and credit history in more detail. They may decide not to lend to you at this point.
Most lenders will run a 'hard' credit search before offering you an agreement in principle, which will leave a mark on your credit file.
This shouldn't be too problematic if you only apply for one or two AIPs. However, having several credit application searches on your file in a short period of time can serve as a red flag to anyone who might be deciding whether to lend to you in the future.
There are some lenders who will only run a soft search, which doesn't impact your credit rating. Talk to a broker to find out the best lender to apply to based on your personal circumstances.
And one final word of warning: don't base your decision on who to get your AIP from based on the deals they're offering, as these might be different by the time you're actually ready to buy a house.
- Find out more: finding the best mortgage deals