A mortgage agreement in principle is an indication of what a lender might be willing to loan you as a mortgage.
As a buyer, having an agreement in principle can help you understand what you might be able to borrow, so you can set your sights on properties you’re able to afford.
But how do you get an agreement in principle and what happens once you have one?
This guide tells you everything you need to know…
How long does a mortgage in principle take?
The best way to get a mortgage agreement in principle is online and this usually only takes a few minutes.
Online applications also usually give you a decision right away.
Alternatively, you can get an agreement in principle in a bank branch, or by phone.
When to get a mortgage in principle
The best time to get a mortgage agreement in principle is before you start looking at properties to buy.
Once you have your agreement in principle, you’ll be able to how the estate agents selling homes you’re interested in that you are a serious and proceedable buyer.
This puts you in a strong position compared with buyers who don’t have agreements in principle.
What do I need for a mortgage in principle?
To apply for a mortgage agreement in principle, you’ll need:
- Your personal details, including name, current address, and date of birth
- Details of your income
- Information on your outgoings and credit card or loan agreements
- Your address history for the past three years
How long does a mortgage in principle last?
Most mortgage agreements in principle remain valid for between 30 and 90 days, depending on the lender.
If you’re unable to find a property or complete your full application before your agreement in principle expires, you may be able to renew it on the same terms, but this is at the lender’s discretion.
How reliable is a mortgage in principle?
A mortgage agreement in principle only tells you what your chosen lender may be prepared to loan you, subject to more thorough checks.
So, while an agreement in principle shows sellers and estate agents that you’re a serious buyer, you shouldn’t rely on it as a guarantee that your full application will be accepted.
Can I make an offer with an agreement in principle?
When you come to make an offer on a property, having an agreement in principle puts you in a strong position.
While an agreement in principle isn’t a guarantee, it shows a seller and their estate agent that your serious about buying and are able to proceed with your purchase subject to your mortgage application.
How many mortgages in principle can I get?
You can apply for as many mortgage agreements in principle as you wish.
However, while most lenders will only perform a soft credit search when you apply, some may do a hard search.
Because a hard search leaves a footprint on your credit file, multiple applications in a short space of time could negatively affect your credit rating.
This, in turn, could affect your full mortgage application when you come to compete it, so always check which search a lender carries out before applying for multiple agreements in principle.
Does a mortgage in principle mean you get the mortgage?
While having a mortgage agreement in principle gives you a great idea of what you can borrow, it’s not a guarantee that you’ll get a mortgage offer from your lender.
Agreements in principle are always issued subject to a successful full mortgage application, where your lender will properly assess your financial situation and borrowing potential.
Can a mortgage be declined after agreement in principle?
Full mortgage applications can be declined – even if you’re given an agreement in principle.
Agreements in principle are issued based on basic income and outgoing information and often just a soft credit search.
Full mortgage applications, however, see a mortgage underwriter take a more detailed look at your finances and earnings, alongside a full credit search.
Most full applications that are declined after a successful agreement in principle are due to changes in circumstances or misinformation regarding income or outgoings.
A hard credit search can also sometimes reveal information that a soft search doesn’t, resulting in a full application being declined.
Why would a mortgage in principle be declined?
If you’re declined for an agreement in principle, it will most likely be because you haven’t met your lender’s criteria for a mortgage.
An application for an agreement in principle may be declined due to:
- Your deposit being too small
- Your loan to value (LTV) being too high
- Not meeting your lender’s initial affordability checks
- Having a bad credit history
- Your address history not matching your credit file
I have a mortgage in principle – what next?
After you’ve secured a mortgage agreement in principle, the next steps are:
1. Find a property and make an offer
Once you have your agreement in principle in place, this shows a seller and their estate agent that you’re a serious buyer and able to proceed.
So, the next step is to find your dream property and try to secure it.
2. Complete your mortgage application
As soon as you have an offer accepted on your next property, you should prioritise completing your mortgage application.
To complete your application, your lender will need:
- Proof of identity (passport or driving licence)
- Proof of address (utility bill or council tax bill from the past three months)
- Details of your employment (P60 and 3-6 months’ payslips)
- Details of your self-employment if applicable (SA302 tax calculation and business accounts)
- Details of your outgoings (credit card, loan, and finance statements, plus 3-6 months’ bank statements)
- Proof of your deposit
Your lender will also perform a full credit check, so ensure that your credit file is in good order and the information within it is correct before submitting your application.
3. Pay your up-front mortgage fees
Your mortgage lender will charge a fee to value the property you’re buying, and this will need to be paid up front.
Mortgage valuation fees can vary depending on the lender and the value of the property being purchased, but you should budget around £300 for this.
Depending on the mortgage deal you’ve chosen, your lender may also charge an arrangement or ‘product’ fee.
This can sometimes be added to your loan rather than paid up front but be aware you’ll pay interest if you do decide to add it to your mortgage.
4. Mortgage assessment and decision
Once your chosen lender has all the information they need, they’ll assess your suitability for a mortgage and work out what they’re prepared to lend you.
Even if you’ve received an agreement in principle prior to submitting your full application, your lender could choose to lower the amount they’re willing to lend – or even decide not to lend to you at all.
If your lender does approve your application, you’ll receive an official mortgage offer which will usually be valid for between three and six months.
Further reading…
- How much deposit you’ll need to buy your first home
- Is now the right time to buy?
- The process of selling a house revealed
If you need advice on buying a property, we are here to help. Contact your local branch today.
