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By Pete Mugleston | Mortgage Advisor

Pete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.

Updated: 12th June 2020*

If you would like to apply for a mortgage Agreement In Principle (AIP) today then firstly, fill out an enquiry form. This will give us enough information to establish the best advisor and refer you across for them to process an agreement in principle for you.

We’ve created this guide so you can learn all about getting an agreement in principle. Read on or use the links to jump ahead to read more on that topic:

If you would like to speak to an expert about your own situation and get help understanding the kind of mortgage you should get, taking all your circumstances into account, call 0808 189 2301 or make an enquiry for a free, no obligation chat with one of the regulated experts we work with.

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What is a mortgage agreement in principle?

An agreement in principle (AIP) is an agreement a mortgage provider makes to lend to you based on an initial assessment of your circumstances, which can include your income, outgoings, and your credit score. It is also referred to as a decision in principal (DIP) or approval in principle (AIP). Some people also refer to it as a mortgage promise.

Each application has to be considered by the mortgage lender subject to status and their lending criteria, but once they provide you with an agreement in principle it confirms that they’d be happy to offer you the money (providing the information you’ve given is accurate). 

Estate agents will ask for proof of the mortgage in principle to evidence that your offer to purchase a property is a credible one. Your advisor will be able to send a copy to you and your estate agent if required.

There are a number of benefits to getting an agreement in principle before you find a property:

  • You know you can borrow the money for the purchase in the first place
  • It gives the vendors and agent confidence that your offer is credible and that obtaining the finance to buy the property is viable
  • It can put you in a stronger negotiating position – in most circumstances, a vendor will be more likely to accept your offer over somebody who doesn’t have a decision in principle in place
  • A mortgage agreement in principle will also give you a clear idea of what price range you should be looking at when shopping for a loan; what deposit you need; your interest rates; your monthly payments; what you can afford to borrow; and what your limits are

Decisions in principle and credit checking

There is one important thing to consider before getting a decision in principle – when an application is processed, the subsequent credit search made by that lender can either leave what’s known as a ‘soft footprint’ or a ‘hard footprint’ on your credit file.

Don’t expect every mortgage lender to want your business – even if you have grade A 999 credit ratings. This is because each provider has their own eligibility and affordability criteria you must meet. The opinions on what is acceptable by underwriters can vary widely for things like employment type, length of employment, contract type, affordability, deposit source, etc.

This is why it’s so important to approach the right lender from the start. It’s generally best to limit the number of mortgage in principle agreements you apply for. You want to know there’s a good chance of being accepted before you even approach providers, and you can do so by speaking to an experienced whole-of-market broker that genuinely knows the whole market.

The experts we work with are all whole-of-market brokers with access to all the UK lenders, both on and off the high street. Make an enquiry and we’ll match you with a broker experienced in helping customers in similar situations.

Types of credit check for an agreement in principle The difference between hard and soft credit checks: Each lender references your credit file in a different way. Some perform ‘soft searches’ and some ‘hard searches’. Why? We don’t know! But it’s true. Soft credit searches for an agreement in principle Soft checks ahead of the agreement in principle stage register as a reference or an enquiry, but never an application for credit. When you check your own credit report online the check will show as an enquiry, and it is OK for you to monitor your own file – this will not adversely impact your credit score, and neither will initial mortgage in principle soft searches. Hard credit searches for an agreement in principle Hard credit checks show on the credit report that a mortgage has been applied for, and too many of these showing in a short space of time can negatively impact the credit score, because the assumption is made that the previous lenders either declined the customer or the customer is potentially higher risk of being fraudulent, trying their arm with multiple lenders until an application sticks. At decision in principle stage, mortgage applications can either show as soft or hard depending on the lender, but when progressing to the full mortgage application, a hard search will almost always be performed.

How to get a mortgage agreement in principle

To get an agreement in principle you can either go directly to a lender or apply through a mortgage broker.

Going direct to a provider only gives you access to a limited range of products, chances are you could get a better, or more appropriate, deal elsewhere. And, if you don’t fit the criteria, you won’t necessarily be accepted at all. With a limited range of loan products, the lender may not have an alternative they can offer you so you’ll be left with no further help.

However, being declined by one lender doesn’t mean that there isn’t another mortgage out there for you. The best brokers and advisors have a thorough understanding of the market and know the lender criteria inside out.

An experienced independent, whole-of-market broker, like those we work with, will already know which lenders are likely to accept you, as well as being able to offer you the best deals from providers across the whole market.

What information might you need?

Before your advisor can apply for the actual decision in principle, they will need to complete a detailed fact find of information and personal details. They will use this to determine your exact situation on which to base the mortgage lender research.

It’s not just a case of applying with the provider who has the best rate. These days lending criteria can be extremely complex and approval can depend on various factors, like:

  • Salary
  • Credit rating
  • Current debts
  • Deposit type
  • Property type
  • Your age

Even how you’re employed can impact this – employees are considered lower risk compared to self-employed workers.

As well as finding the lenders to consider your application, it is also necessary to allow your advisor the right information to recommend the best products for you.

If, for example, you have plans to sell the property in 3 years, it wouldn’t be prudent to recommend a 5-year fixed-rate mortgage. Or, if you have had adverse credit in the last 2 years, it would be sensible to find a lender who considers recent adverse credit. Without these detailed conversations, your advisor wouldn’t have the knowledge to make the right recommendation.

Offline AIP form: If you wish to make an application for an agreement in principle now, you can make an enquiry.

What documents will I need for an agreement in principle?

Your advisor will need to verify your identity, your salary, and your outgoings by requesting certain documents before they can offer you an agreement in principle.

This pre-empts what the mortgage lender will request to ensure that the right provider is being approached from the outset. Without all of the evidence, it is difficult to establish the exact situation and thus source the right lender, especially when it comes to evidencing income. Your mortgage advisor will need exact figures to input on the lenders system from payslips / self-employed accounts.

In most instances, in order to obtain an agreement in principle the following documents will be needed:

  • Proof of ID (Must be valid and in date): Passport or driving licence
  • Proof of address (Must be within the last 3 months): Utility bill, council tax, mortgage statement etc
  • Proof of income: Payslips – 3 months or 13 weeks
  • Self-employed accounts: Last 3 years, SA302 tax returns – last 3 years
  • Proof of outgoings: 3 months’ bank statements
  • Proof of deposit: Statement from savings account, letter from relative to confirm if from a gift
  • Credit reports (If adverse credit declared): Experian, Call credit, Equifax
  • New property details: Property address, Property type (flat / house etc), No. of bedrooms and other rooms, Material of build, Year built, Does it have a garage/parking?
  • Estate agent details: Contact name, address & number
  • Solicitor details: Contact name, address & number

What do mortgage lenders base their decision on?

Lenders will base this on a number of different factors.

Most importantly, they will be interested in your credit history, your salary relative to the loan size, the amount of deposit or equity in the property and your affordability, taking into account any existing financial commitments.

Loan-to-value (LTV)

Simply put, the higher the LTV the higher the risk of the lender not getting all their money back if the property were repossessed. If you are borrowing at a higher LTV, your credit history and credit score must be better than someone who has a much larger deposit, you are also likely to pay a much higher rate of interest.

Loan to income (LTI)

Typically, mortgage providers either perform an affordability-based model or an income multiple based model, but in essence, the maximum borrowing limit sits somewhere around 4.5x annual salary. Some lenders are more generous and will stretch to x5 or x6. If you are borrowing on a higher LTI then the risk of you not being able to afford the loan is greater for the lender.

Adverse credit

If you have adverse credit there are specialist lenders out there that will consider your application. Whether you can find a lender and, if so, what rate you could achieve will depend on the severity of the issue and how recent the credit event was.

The more deposit you have, the better the loan-to-value for the provider and the more likely it is you’ll find a lender willing to approve your mortgage at a good rate.

Income

Employed applicants will need to evidence their annual salary and any other annual income such as bonuses, commission, overtime, and car allowance to assess your repaying capability.

The lenders also consider how long you’ve been in your current role and with the current employer. Employees who have been in a company for years are less risk than those who have just started.

Anyone looking to start a new job or who has recently started, may struggle with a lot of lenders that require 6 months in the current role. There are some lenders who are happy to consider anyone who has started a new job recently, either from day 1 or even with a contract not due to start for the next 3 months, even if in an initial probationary period.

Anyone who is self-employed can find a mortgage with as little as 1 year of trading, but most lenders require 3 years account history. Some will take an average of your last 3 years, others 2 years, and a small number of mortgage providers will consider applications based purely on the most recent year’s figures.

Deposit

The source of your deposit is an important factor with most lenders, since the rules around evidencing where the money has come from are strict and must comply with money laundering regulations.

Anyone who has saved their own deposit will be able to use this with no problems, although if the deposit is in an account overseas only a few lenders will accept this. Those self-employed taking deposit from their business accounts can do, but the accountant will need to verify that the withdrawal of these funds doesn’t impact the ongoing ability of the business to trade in any negative way.

Anyone receiving a gifted deposit will need to evidence the source of these funds either with the lender or the solicitor.

Using gifted funds from abroad as deposit can be more difficult to evidence, but some mortgage lenders will still consider this acceptable. Anyone gifting money who is not a direct family member will again need vetting closely, and although most providers do not accept gifted deposits from outside the family, some do – there just needs to be a justifiable explanation for a third party wanting to gift the money.

Multiple applicants

Applications with 2 people on the mortgage jointly will have both incomes considered. With most lenders, married applicants will need to go on the mortgage in joint names, however, there are some lenders who will accept sole married applicants in certain circumstances.

Three or more borrowers can feature on a group purchase or remortgage application, but most providers will only factor in the first 2 applicants’ salaries in their affordability assessment.

An agreement in principle does not guarantee a mortgage

Although it is often referred to as a ‘mortgage promise’, getting a decision in principle online or anywhere else, does not actually guarantee you the funds. At this stage it is only the lender’s system that has approved your application. Therefore, you will still need to produce the necessary documents to verify the figures you have been approved on, and also have the lenders underwriting team assess the application as a whole and sign it off.

The formal mortgage offer, when you can be sure the lender is happy to give you the money, doesn’t actually get issued until after the full application and the property has been approved as suitable by a local surveyor.

Doesn’t this make the decision in principle a bit pointless?

No, you will still need the lender’s system to approve you in order to get the funds. 

Acceptance is always a good indication that the application will be approved. Good brokers know that cases need packaging and presenting to the lender in the right way, especially if there is adverse credit or other non-standard circumstances involved.

Remember, nothing is set in stone until you get the mortgage offer, have the funds released to the solicitor, have the keys and move in! You will also need a certificate of approval for the estate agent to acknowledge that your offer of purchase is viable.

Once you have an agreement in principle, there are still a few factors that could mean a mortgage is not granted on, or after, the full application:

  • If any of the details provided are incorrect (e.g. address history inaccurate, resulting in an incorrect initial credit score)
  • If you cannot provide the documents requested (e.g. the lender asks for business accounts from a qualified accountant to verify your income and you don’t have one)
  • If anything on your credit report has changed since the initial agreement in principle was produced (e.g. payment history excellent before the application, but payments missed after initial decision and before mortgage offer)
  • The underwriters decline the application (e.g. they decide they are not happy with the current account conduct indicating high use of overdraft and inability to live within means)
  • The property is deemed unsuitable for lending purposes (This could be either because it is non-standard construction and outside of the lender’s policy; it may be an ex-local authority property and the lender you got the initial agreement in principle with doesn’t accept this property type; it may be due to the property being down-valued from the price you have applied for; or perhaps due to some structural issues that makes the lender question its use as security.)

If you’re enquiring for mortgage help, it is important that all the information you provide is as accurate as possible. Everything you provide will help your broker research the market for the right lender for you, and ensure that there are no hidden surprises that may come to light down the line and cause problems with your application, possibly causing a lender to decline.

Although your broker will aim to put you with the best lender possible, it is the underwriters who make the lending choices at the end of the day, so it’s vital the broker knows the full story to be able to match you with the right lender from the outset.

Have you had an agreement in principle rejected?

If you’ve been refused an agreement in principle don’t give up hope.

There’s a whole number of reasons why this may have happened. Every lender is different in what they do and don’t accept and even if one lender rejects your application, it doesn’t automatically mean others will. When it comes to assessing your credit history, credit score, income, deposits and your affordability, every lender will assess borrowers in their own way.

Make an enquiry and we will make sure you’re passed through to the most appropriate whole-of-market broker, with expert knowledge of helping customers in similar circumstances and who handles enquiries like yours every day.

Has your decision in principle been referred?

Sometimes a mortgage application will come back with a message saying that the decision in principle has been ‘referred’.

This basically means there is something to do with the application conflicting with the lender’s system, meaning that it is either not quite within normal acceptable policy, or has been incorrectly keyed in.

99% of the time a referred case will pass through to a frontline underwriter for review, who will then make a manual decision on lending – this can usually take between 1 and 5 working days, depending on the mortgage provider and their current workload.

Sometimes all that is needed is quick clarification of something minor, or perhaps more information will be required in order to reach a decision (i.e. explanation as to why a payment was missed or an overdraft exceeded etc). Other times the underwriters can still decline the application at this stage – often it is them looking for reasons to lend rather than reasons not to lend.

Your broker should chase this up immediately with a phone call to the processing team to establish the reason for referral, as they should if the case is declined. There may well be a reasonable explanation that can be solved and the mortgage quickly approved, there may have been a keying error on the application, there may even have been a technical fault with the mortgage system that needs addressing.

The decision in principle certificate

To evidence a decision in principle, mortgage lenders will allow you to request a mortgage agreement in principle certificate.

Sometimes these can show the maximum loan amount available so you know what your borrowing limits are; other times it states the loan amount applied for has been approved; and sometimes it simply states that you have been accepted. 

You can use this as proof to estate agents and vendors that you are likely to get the finance that you need to purchase the property.

First-time buyers

Lending criteria can differ for first-time buyers, particularly when it comes to salary.

All mortgage lenders will require residential borrowers to evidence affordability for the loan taken. Some providers impose tighter limits when it comes to personal income, and most lenders will demand that first-time buyers meet a minimum income threshold – circa £20-25,000 (sole or joint). 

Lenders may also require first-time buyers to have higher credit scores because they are seen as slightly higher risk than someone used to owning their own home.

Buy-to-let (BTL) mortgage lenders also impose tighter rules on first-time buyers, where most do not accept them at all. Other lenders may demand that first-time buyer income must be sufficient to cover mortgage affordability as if they were moving into the property themselves.  Usually, existing homeowners and experienced landlords can borrow on BTL loans with little or no personal income.

Not all mortgage brokers are aware that first-time buyers have different lending rules, so if you’re looking for an agreement in principle and are not using one of our brokers, make sure you choose a broker with a strong knowledge of lender criteria.

How long does an agreement in principle take?

The amount of time it takes to get an agreement in principle depends on a number of factors but, essentially, it can be an immediate decision for a lot of borrowers.

Typically, the limiting factors will be:

  1. Gathering all the necessary documents for the advisor to verify income and identification etc.
  2. Finding the right lender for your circumstances. This can be quick and easy for straightforward applications where borrowers are employed, borrowing under 4.5x income, borrowing under 85% Loan to value, and clean credit. 

When an application is made under the most straightforward of circumstances, agreements in principle can be granted within a matter of minutes of the fact find.

For anyone who is considered outside of the ‘standard’, perhaps if they have adverse credit for example, the agreement in principle can take more time to approve because it can take much longer to research the best mortgage provider.

If time is of the essence and you need a mortgage in principle fast, make an enquiry today

We don’t charge any extra for the express service and nothing about the service changes but, knowing that time is of the essence, we’ll try to get the red carpet rolled out and ensure you’re dealt with as promptly as possible.

If you have all the documents and information outlined above to hand, then one of the brokers we work with could have a decision in principle in place for you by the end of the day, allowing 24 hours for complex applications.

How much does a decision in principle cost?

Every broker is different in how they charge fees. Some charge back-end completion fees, some charge upfront fees, and some do a bit of both.

Typically when you first talk to an advisor it is free of charge for them to establish what you want to do and if it’s possible – you shouldn’t pay or commit to anything at this stage.

How long does an agreement in principle last for?

Typically, the agreement in principle mortgage lenders issue lasts between 60 and 90 days, and an online mortgage promise should be exactly the same.

However, it’s important to think of the agreement as a ‘live-system’. For example, if your circumstances were to change and you missed a payment on your credit card after the initial agreement in principle, the credit score could change and the provider may decline your application.

Similarly, if nothing changes but the AIP expires, there’s usually no reason why that same lender wouldn’t re-approve you after this point. A resubmission is relatively quick and simple to process and can often be done at the click of a button.

Speak to an expert

Whatever your circumstances, make an enquiry and we’ll connect you with one of the expert mortgage brokers we work with.

All the experts we work with are whole-of-market brokers with the tools, knowledge and experience to give you a greater understanding of your options. They’ve helped many people secure their ideal mortgage, and they are best-placed to help you find the mortgage you want.

Call 0808 189 2301 or make quick online enquiry and we’ll match you with an advisor shortly.

Updated: 12th June 2020
OnlineMortgageAdvisor 2020 ©

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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