Mortgage in principle - FAQs and everything you should know

Are you looking for a new mortgage but you’re not sure whether you are eligible? Or, do you need to know how much you can borrow? If so, you might be considering getting a ‘mortgage agreement in principle’.

A mortgage agreement in principle is a quick decision that tells you whether a lender is likely to consider your application and what size mortgage you can get. Our guide tells you everything you should know about an agreement in principle.

What is a mortgage, or agreement in principle (AIP)?

An Agreement in Principle (AIP) is a quick decision from a bank or building society about your borrowing potential. It lets you know whether a lender will consider you for a mortgage, and how much you can borrow.

An agreement in principle is sometimes called a ‘Decision in Principle’ (DIP), a Mortgage Promise or a Lending Certificate.

An agreement in principle takes into account:

• What you can afford based on your income, outgoings and other factors.
• Your credit score. A lender will contact a credit reference agency for a credit check as part of this process. Many lenders use a ‘soft’ credit check which does not affect your credit rating.
• A lender’s specific lending criteria.

You will normally need to provide three years’ address history and proof of your income and outgoings.

When the decision in principle is completed, a lender should be able to tell you straight away whether they will lend to you, and how much you can borrow.

They will also normally give you a certificate so that you can prove to estate agents and the seller that you can get a loan. This is useful if you need to move quickly and, because an AIP takes effort, it helps you to position yourself as a serious property buyer.

Does a mortgage in principle guarantee you a mortgage?

A mortgage agreement in principle is not a formal mortgage offer. This means that while it is a useful guide, it does not automatically mean that the lender will offer you a mortgage of the same amount.

When you come to apply for a mortgage you may find that you can’t borrow as much as you expect. This could be because:

• Your circumstances change
• Your credit score changes, meaning when full searches are carried out something is flagged up
• The type of property you want to buy changes
• The amount of deposit you have changes
• Following an interview, the lender does not have a suitable mortgage for you

Declined mortgage in principle

There are a number of reasons why you might find your mortgage agreement in principle is declined. These include:

• Poor credit history – you may have adverse information on your credit file, for example defaults, missed payments or County Court Judgements (CCJs).
• You’re not on the electoral register – lenders need to confirm who you are and where you live.
• Too much debt – your existing debt may be too high for a lender to agree your mortgage.
• You’ve had a payday loan – payday loans that you have taken out in the last few years will be listed on your file. Some lenders see this as a negative as it suggests you won’t be able to cope with the financial responsibility of a mortgage.
• Admin error – sometimes lenders make mistakes, such as entering incorrect income details. Ask to speak to them to ensure everything is correct.

If your agreement in principle is declined, it may simply be because you don’t fit a particular lender’s demographic. Some lenders simply won’t lend to certain types of people, or on certain types of property.

This doesn’t mean that you won’t get a mortgage from another provider. Speak to an independent mortgage broker who can scan the market for you and find a lender that fits the bill.

Does the lender have to honour an agreement in principle?

No. An agreement in principle is not a guarantee that you will definitely be offered a mortgage. When you make a full application, the lender may change their decision or offer you different terms.

Additionally, if a lender finds something that you haven’t previously mentioned that negatively affects your application, they could change their mind about whether they will lend to you, and how much they are prepared to advance.

Once you have gone through the full application process – where a lender checks your income and expenditure, your credit history, and your identification – they will issue a binding offer. The regulations stipulate that this binding offer must then be honoured by the lender except in unusual circumstances - such as a sudden change in your income.

However, the Association of Mortgage Intermediaries (AMI) says that this rule is not being observed by all lenders. Find out more here.

How long does it take to get an agreement in principle?

Most lenders offer an agreement in principle procedure. Typically, you can apply for an AIP:

• By calling into a branch and speaking to a member of staff
• Online
• By telephone

The process ordinarily takes between 15 minutes and an hour, depending on how much information the lender needs. You will generally get a decision straight away, and a lender can often print a certificate to confirm that your mortgage has been approved in principle.

How long does an agreement in principle last?

A mortgage decision in principle is usually valid for between 60 and 90 days. The actual time will vary from lender to lender.

Can an agreement in principle be renewed?

Yes. If your AIP expires then you can approach your lender to renew the agreement. You may have to go through the process again in order that the lender can carry out a fresh check of your credit file.