An Agreement in Principle Is a Starting Figure, Not a Promise to Lend
You can get an agreement in principle in about ten minutes, often without leaving the sofa. It tells you roughly what a lender might let you borrow. It does not tell you that you will get the mortgage. Plenty of buyers find out the difference after they have paid for a survey, and that is the reason this post exists.
What an Agreement in Principle Is
An agreement in principle is a statement from a lender that, on the information you gave and a quick check of your credit file, it would be willing in principle to lend you a certain amount. Lenders and estate agents use different names for it. You will hear mortgage in principle, decision in principle, DIP, AIP and mortgage promise. They all mean the same document.
It is not an application and it is not an offer. Think of it as a first filter. The lender has not seen a single payslip, has not looked at the property and has not run its full affordability model. It has taken your word for your income and your outgoings, and it has glanced at your credit record.
What the Lender Checks at This Stage
You will be asked for your income, your employment status, your regular outgoings, any debts, your deposit and how many people are on the application. The lender compares those answers with its own rules, and in a few minutes it returns a figure.
What it usually does not check is just as important. Nobody has verified your income against documents. Nobody has confirmed where the deposit came from. The property has not been valued, and the lender does not yet know whether it is a flat above a shop, a former council house or a leasehold with 70 years left. Each of those can change the answer.
Soft Search or Hard Search
When a lender looks at your credit file for an agreement in principle, it does so in one of two ways. A soft search leaves a mark that only you can see, and other lenders cannot. A hard search is recorded as a credit application and other lenders can see it for around a year.
Most lenders use a soft search for an agreement in principle, though a minority use a hard one. A single hard search will not wreck your credit score, but several in a few weeks can look as though you are being turned down repeatedly. So check before you press the button. If a lender or website does not say which kind of search it runs, ask, or have a broker ask for you.
A buyer at her kitchen table asking an adviser which type of credit search a lender runs
How Long an Agreement in Principle Lasts
Most last between 30 and 90 days, and the period is set by the lender. Some have no fixed expiry, but they will want a fresh one if your circumstances change. If you have not found a property, or had an offer accepted, before it runs out, you apply again.
A second search for the same purchase is usually harmless if the first was soft. Where the first was hard, it is worth asking whether the lender will extend it before you start again.
What an Agreement in Principle Does Not Promise
It does not promise a mortgage. The full application is a separate and much deeper check, and lenders decline cases that held an agreement in principle every week.
It does not lock in a rate. A mortgage rate is normally reserved when you make the full application or when the lender issues the offer, depending on the lender, and not when you take the agreement in principle. If rates move between the two, the rate you see at the start is not guaranteed.
It does not fix the price. A seller can raise the asking price, or accept someone else’s offer, at any time until contracts are exchanged. An agreement in principle gives you a negotiating position and nothing more.
It does not tell the seller how solid you are, either, whatever the estate agent implies. A buyer with a paper agreement in principle and a buyer with a verified decision from a broker are not treated the same way by a good agent.
A Worked Example
A couple earning £62,000 between them gets an agreement in principle for up to £279,000, which is 4.5 times their combined income. They find a flat at £295,000 and have a 10% deposit of £29,500. That means a loan of £265,500, which is 90% of the price and about 4.3 times their income. It sits inside the figure they were given, so far so good.
The lender then values the flat at £280,000. The lender lends 90% of its own valuation and not of the price you agreed to pay, so the most it will now advance is £252,000. The gap to the loan they planned is £13,500. The couple must find that extra cash, which takes their deposit to £43,000, or about 14.6% of the purchase price. The agreement in principle was right about their income. It simply could not know what the property would be worth.
A buyer’s hands on a mortgage offer letter beside the house keys, the stage that comes after an agreement in principle
The same thing happens in reverse with credit. A new car finance agreement signed between the agreement in principle and the full application can shrink the borrowing figure, and it is one of the commonest reasons a number moves.
Why an Agreement in Principle Can Turn into a Decline
Most declines after an agreement in principle trace back to a short list. The income on the payslips or the self-employed accounts does not match what was declared. A new debt, a missed payment or a change of job appears after the first search. The valuation comes in below the price. The property itself falls outside the lender’s rules, which happens often with leasehold flats, non-standard construction and properties with short leases. Or the lender has simply changed its criteria since the day you applied.
None of these is a sign that something is wrong with you. They are the reason the full application exists. If it has already happened to you, our post on why a mortgage can be declined after an agreement in principle covers the causes in more detail and what to do next.
When to Get One
Get one before you book a single viewing. It sets the price bracket you search in, and agents tend to take a buyer with a figure in hand more seriously than one who is still guessing. First-time buyers get a second benefit: problems show up while there is time to fix them, a thin credit file or a missed phone bill from last spring, say. If you are still working out the number itself, how much you can borrow on a UK mortgage and the first-time buyer mortgage page are the places to start, and the agreement in principle comes once that figure looks sensible.
One thing to watch. Applying to four lenders in a week, without knowing which of them search hard, leaves four marks on your file. Pick one or two, find out how each searches, and stop there.
How a Broker’s Version Differs
Ours starts differently. Before anything is submitted, we look at your payslips or accounts, work out which lenders take your kind of income and your kind of property, and find out which of them search softly. So the figure you take to a viewing has been checked against how real lenders behave, not against an online calculator that has never heard of your employer. We can also spot early when a lender will treat a bonus, a second job or a short lease badly, which is where many of these numbers fall over later.
Frequently Asked Questions
Does an agreement in principle affect my credit score?
Not usually.
Most lenders do a soft search at this stage, and a soft search is invisible to other lenders and does not move your score. A few run a hard search, which does appear on your file and can pull your score down a little for a while. You can ask before you apply, and it is worth asking.
Can I have more than one agreement in principle?
You can, and some people do it to see how two lenders differ.
What matters is the type of search. Two soft searches cost you nothing. Two hard ones start to add up, so check each lender first.
Does an agreement in principle lock in my interest rate?
No.
Most lenders reserve a rate when the full application goes in or the offer is issued, and the exact point depends on the lender. The rate on the screen when you took your agreement in principle can be gone by then.
How long does an agreement in principle last?
Anywhere from 30 to 90 days, set by the lender.
If it runs out before an offer on a property has been accepted, you apply again, and your circumstances need to be the same as when you first applied for the figure to hold.
What is the difference between an agreement in principle and a mortgage offer?
An agreement in principle is an early estimate, and a mortgage offer is a firm commitment to lend.
The offer comes after the lender has checked your documents, valued the property and approved the full application. Until you hold an offer, the amount, the rate and the lender’s willingness to lend can all still change.
Do I need an agreement in principle before I view a property?
You do not have to, but it is sensible to have one.
Without it you do not know which price bracket to search in, and some estate agents will ask to see one before they arrange a second viewing or accept an offer.
Final Thoughts
An agreement in principle is a good first step and a weak promise. Read the figure as a ceiling you may not reach, have your payslips and bank statements to hand, and hold off on new credit, a car on finance or a new phone contract, until you have the keys. If you want a second opinion on the number before you start viewing, speak to one of our mortgage advisers.
UK Mortgage Broker is a whole-of-market broker helping clients throughout the UK and globally to secure funding on UK property. We are directly authorised and regulated by the Financial Conduct Authority.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Call: +44 1628 969 500 Email: info@uk-mortgagebroker.co.uk
Related Pages
- The Process of Getting a Residential Mortgage – The steps from first enquiry to completion, and where an agreement in principle fits.
- How Lenders Check Income – What underwriters verify for employed, self-employed and contract income.
- How to Fix a Mortgage Rate Before You Have Found a Property – How a rate can be secured early and what happens if the purchase falls through.
- Types of Mortgage in the UK – The main mortgage types explained side by side.
- Residential Mortgages – Home-mover and purchase mortgages from a whole-of-market broker.