What is a mortgage agreement in principle?
An agreement in principle (AIP) is a certificate or written statement showing how much a lender is willing, in principle, to lend you for a mortgage.
It’s not compulsory to get one, but it could make the house-hunting process easier – particularly if you’re a first-time buyer.
Here are the basics of how it works:
You give your mortgage broker or potential lender information about your finances
They’ll give you an estimate of how much you could borrow
You can then start looking for homes within your mortgage budget.
Bear in mind...
An agreement in principle isn’t a formal mortgage offer as it’s usually only based on a soft credit check. When you actually apply for a mortgage, you may find that you’re offered a different amount or even that your application is turned down – this is why it’s called an agreement in principle.
Other names for an agreement in principle
Confusingly, mortgage lenders and brokers may refer to an agreement in principle by another name. Alternatives include:
Mortgage in principle (MIP)
Decision in principle (DIP)
Mortgage agreement in principle
Mortgage promise
Approval in principle.
While the names might be slightly different, they all mean the same thing.
How can I get an agreement in principle?
You have two options when it comes to getting an agreement in principle.
Mortgage broker You can go to a mortgage broker and see which mortgage deals you might be eligible for.
Many brokers (including our mortgage partner L&C Mortgages Ltd**) will be able to sort out an AIP straight away, as long as there are lenders that are (in principle) willing to offer you a mortgage.
Mortgage provider Alternatively, you could go direct to a lender. It typically takes about 10-15 minutes to fill in an online AIP form.
Once you’ve submitted your application, you should get an instant decision from the lender, although it may take up to a day.
Quick tip
It can make things simpler if you get an AIP from the mortgage provider you’re likely to want to get your mortgage from, but it isn’t essential.
You can still change your mind about where to borrow from when it comes to applying for a mortgage, so don’t worry about being tied in.
About London & Country Mortgages Ltd (L&C) **London & Country Mortgages Ltd (L&C) is a multi-award winning mortgage broker with over 20 years’ experience in helping people secure their perfect mortgage. Advice is provided by L&C, which is authorised and regulated by the Financial Conduct Authority (143002). L&C is not a part of Compare the Market Limited. Compare the Market receives a % of the commission that our partner London & Country earns. All applications are subject to lending and eligibility criteria. L&C will not charge you a broker fee should you decide to proceed with a mortgage.
When should I get a mortgage agreement in principle?
It’s often a smart move to have a mortgage in principle sorted before you properly dive into property hunting. Here’s why:
It helps you keep your expectations in check – you'll have a clearer idea of what kind of budget you’re working with
It shows estate agents you’re serious and in a strong position to buy, which can prevent any delays in viewing properties.
Still at the stage of seeing what you can get for your money in different locations? Use our mortgage calculator to give you a ballpark figure of what you can potentially afford.
What do I need for a mortgage agreement in principle?
To get a mortgage agreement in principle, you’ll need to supply various details about yourself and anyone else you’re buying the property with. These include:
Personal details, including your name and date of birth
Addresses for the past three years
Your income and monthly outgoings
Details of any savings and debts
Getting an AIP will need a credit check to be carried out. This will look at your credit history, including:
Your repayment history
Any past or present loans
Car finance or credit card debts.
Will getting an agreement in principle affect my credit score?
Getting an AIP shouldn’t affect your credit score. Most lenders run a soft credit check, which won't show up on your credit file. That said, it's sensible to double-check with the provider, just in case.
If it runs a hard search, this will leave a ‘footprint’ on your credit file that will be visible to other lenders. A high number of hard searches in a short period of time can have a negative impact on your credit score and, in turn, impact your chances of being accepted for a mortgage. This is because it could raise a red flag by implying that you’re struggling to get credit from lenders.
Comparing mortgages with Compare the Market only runs a soft credit check and so won’t affect your credit score.
Quick tip It’s a good idea to check your credit file before you start your house-buying journey. Use it as an opportunity to check for any errors that could affect your chances of being accepted for a mortgage.
You can get a free credit check from each of the ‘big three’ credit reference agencies – Equifax, Experian and TransUnion.
Is an agreement in principle guaranteed?
An AIP is not a guarantee that you’ll get a mortgage offer. You’ll still need to go through the full mortgage application process when you find a property you want to buy.
If you apply via the same broker or lender that you got your AIP from, they’ll use the information you originally gave them as part of your full application. But they’ll also want to make sure the details are still correct and carry out a full ‘hard’ credit check.
The outcome of your application might also be different from your AIP due to factors including:
Changes in the lending criteria
Interest rate changes
Changes in your personal circumstances.
Why get a mortgage in principle?
Getting an agreement in principle can be useful for a few reasons:
It shows you’re a serious buyer
An AIP indicates that you can in principle afford to buy the property you’re interested in and gives you more credibility with estate agents and sellers.
It could even give you the edge if a seller is weighing up offers from more than one buyer. In a competitive market where sales move fast, having an AIP can be particularly helpful.
It helps with budgeting
An AIP is also reassuring for you as a buyer and gives you an idea about which properties you can afford.
You might find you need to lower your expectations about the sort of homes that are within your budget. On the other hand, you may be able to afford a more expensive home than you initially thought.
It can speed up the house-buying process
Having an AIP reduces the risk that you’ll apply for too big a mortgage and end up being turned down.
A mortgage rejection will show up on your credit file, which can make further applications more difficult.
What happens after I get an agreement in principle?
Once you’ve had an offer accepted on a property, you should contact the broker or lender to start the formal mortgage application process.
A lender can still change its mind after giving you an agreement in principle. It may not make a mortgage offer or might change the terms once it’s considered your application.
Before the lender makes a final decision on whether – and how much – to offer you, it’ll need to:
Carry out a detailed check of your finances to make sure you can comfortably afford the mortgage repayments. This includes a hard check of your credit file
Arrange a valuation to make sure the property is roughly worth the price you want to pay for it
Send your application to its underwriting team to scrutinise your application and decide how risky you are as a borrower.
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With over 10 years’ experience writing, editing and managing content, Emma has written and edited for some of Australia’s leading financial comparison brands, including Savings.com.au, Your Investment Property Magazine, and Your Mortgage.
Ele Clark is an award-winning editor who has held leadership roles at Which? and news-stand publications in London and Dubai. She’s appeared across the press and media, including BBC’s Panorama. With almost 20 years’ experience in personal finance, insurance and consumer journalism, she leads a talented team at Compare the Market, creating insightful, accessible content to help people make informed financial decisions.
Sajni is passionate about finding money products to help you make great financial decisions. She keeps track of the latest trends and evolving markets to find new ways to help you save money.
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