If you’re thinking of buying a property, a mortgage agreement ‘in principle’ can be a good starting point. These agreements have a number of useful benefits including giving you some idea of how much you might be able to borrow. This guide explains how they work.
Mortgage lenders provide mortgage agreements in principle to indicate the most they might be willing to lend you. This is based on information you give them. They’re sometimes called a ‘decision in principle’, a ’mortgage in principle’, an ‘approval in principle’, a ‘mortgage promise’ or a ‘lending certificate’.
If you’re a first-time buyer, you might want to check out our guide on how mortgages work before getting a mortgage agreement in principle.
A mortgage agreement in principle isn’t the same as an official mortgage offer. Essentially, a lender is giving you an idea of how much you might be able to borrow from them but they are not tied to the offer – and neither are you. The agreement in principle might include details of interest rates as well as the maximum the lender might be prepared to lend you.
A mortgage agreement in principle is useful for helping you work out what property price you might genuinely be able to afford. It can also give sellers and estate agents confidence that if you’re interested in a property, you would be able to get the necessary mortgage to be able to afford it.
To get a formal mortgage offer you will need to provide more details than you do for an agreement in principle. The lender will also carry out extensive checks into your finances and the property you want to buy.
To get a decision in principle you need to provide financial information so the lender can estimate what you could afford. That includes details of your income, your expenses and your addresses for the last three years. You might also need to provide photo ID. To get a formal mortgage offer you’ll need to provide additional details and evidence.
With many lenders you can apply online. Providing you have the right information to hand, this can take around 15 minutes.
Choosing a lender to approach requires some research. With Experian you can compare mortgage deals. Searching is free and won’t affect your score. Another option is to speak to a mortgage broker who can help you navigate the mortgage market.
Whether you’re looking to buy property for the first time or to remortgage, you can apply for an agreement in principle.
It’s a good idea to get an agreement in principle before you start property hunting. Estate agents often ask if you have an agreement, so they know if you’re a serious buyer. If you’re just at the stage of thinking about it and checking prices, many lenders have online calculators which can give you a ballpark figure of how much you might be able to borrow.
Filling in an online form can take around 15 minutes provided you’ve got all the information that’s needed. The response should be fairly instant, but at most will be within 24 hours.
Decisions in principle are usually valid for between 30 and 90 days. If your agreement expires before you’ve found your dream home, you can apply again. You don’t have to use the same lender or broker.
While having an agreement in principle is useful, you need to be aware of the limitations. Lenders base the agreement on fairly basic information and will need much more detail and evidence before making you an official offer. They won’t have done a full credit check, for example. And if your financial situation has changed or there are specific issues relating to the property you want to buy, lenders might have to reconsider.
The main benefits of having an agreement in principle are:
It’s possible to get more than one agreement in principle. But the chances are you’ll end up with similar results so you might not want to spend lots of time shopping around. And, while it shouldn’t affect your credit score, you need to be aware that with some lenders it might.
With the agreement in place, you can start looking for a property. When you’ve found one you want to buy, you need to get back in touch with the broker or lender to start the formal application. Or you can opt to apply to another lender. Any lender will need to value the property and do more extensive checks on your finances before making an official offer. Even if they gave you the initial agreement, they could change their minds about how much they’re prepared to lend or decide against making an offer.
Most lenders do what’s called a ‘soft’ credit check when you apply for an agreement in principle. That means it won’t affect your credit score. It’s worth checking what a lender or broker’s website says about this though – especially if you plan to apply to more than one. If the lender does a ‘hard’ credit check it could make a difference.
If your agreement in principle runs out, you can apply for a new one. That can be from the same lender, or you could start from scratch.
As long as you provide realistic details to get a decision in principle, it’s useful for understanding your own budget as well as giving estate agents and sellers confidence. Just bear in mind it’s not guaranteed.
We're a credit broker not a lender†