What is an Agreement in Principle and do I need one?

• getting an Agreement in Principle is the first stage of applying for a mortgage
• you usually need an Agreement in Principle before estate agents will let you view properties
• bear in mind, the Agreement in Principle isn't final and it can differ from the amount you're offered when you submit a full mortgage application.

An Agreement in Principle is an indication of how much money you can borrow, before you get your mortgage approved.

It helps to give you an idea of how much you’ll be able to borrow and the kind of properties you can afford. It’s important you have one as most estate agents will ask to see it before showing you around properties. Once you’ve got it sorted, you’re able to make a full mortgage application.

Bear in mind that while an Agreement in Principle is indicative of what you can borrow, it’s not a guarantee of how much you will be able to lend. They aren’t legally binding and are subject to full checks.

The main reason you need an Agreement in Principle is to help you with your property search. With one you can view properties that are within your budget.

It can also help you to be confident when making offers and shows estate agents that you’re serious about the property.

You'll need one whether you're:

• buying your first home
• moving house 
• remortgaging from another lender.

Some lenders perform a hard credit check for an AIP, whereas others might only do a soft credit search. Soft checks won’t impact your credit rating but a hard search can so be sure to check!

There are a few key things lenders will look at to give you an Agreement in Principle, including your:

• income
• outgoings
• credit history
• deposit amount and property details (if known).

The AIP process considers your income and outgoings, so before you apply it’s good to have these details to hand. And make sure you’re somewhere you feel comfortable sharing this information over the phone. It could include:

• your income
• credit, store or charge card balances
• loans (both sole and joint applicants)
• car leases
• pensions
• any school fees
• childcare costs
• divorce settlement payments.

An Agreement in Principle with first direct lasts for 6 months but it can vary by lender. If your circumstances change, you decide to borrow more, or your agreement expires before you find a property, you’ll need to apply for a new Agreement in Principle. 

The mortgage offer you get can differ from your Agreement in Principle for several reasons including the valuation of the property, how much you can afford to borrow and your individual circumstances. It isn't a final decision and more detailed checks are carried out when you submit a full mortgage application.

Think carefully before securing other debts against your home. Your home may be repossessed if you don't keep up repayments on your mortgage.