Agreement in Principle

Podcast approved by The Openwork Partnership on 26/03/2025

When should I get an Agreement in Principle (AIP)?

It does depend on what you’re doing. If, for example, you’re looking to buy your first home or your next home, before you go to view houses and so all the exciting things, you should always look to get an Agreement in Principle first.

Even if you’re just thinking about it, it’s really important that you get that AIP as early as possible in the process. People do make that mistake – they do the exciting part first, which is finding a property.

I don’t blame them. You’re popping online and looking at all those homes. But it’s really key to get advice and that Agreement in Principle first. You’ll then know what sort of budget you’re playing with and that you qualify for a mortgage, more importantly. A mortgage broker can help you with that.

If you’re looking to remortgage, it’s a similar process, whether you want to raise funds or just get a new interest rate. Again, before you think about getting quotes for building works or whatever, get that Agreement in Principle. Understand what you can borrow before you take any drastic steps.

What information do I need to get an Agreement in Principle?

This is the key step between the first meeting with an advisor and getting what you really want, which is that bit of paper to say you’ve been agreed in principle. Usually, after the discovery call with a client, we talk through the next steps and what documents are required to get an Agreement in Principle.

The first thing is to understand more about you and your circumstances. We normally capture that via our online portal where clients log in and start filling in the questionnaire.
It collects information like your address history and your employer’s details. If you’re self-employed, it requests some business details.

Most importantly, there is a budget planner, which provides evidence that you can afford a new mortgage alongside all your other bills – you’re not left with nothing at the end of the month. Then there are some other questions around your credit history, dependants and credit commitments.

We ask for documents before getting an Agreement in Principle to be really confident that we won’t have any problems when you eventually apply for the mortgage – because we can evidence everything we are telling that lender.

We ask for proof of your income, ID and your credit report. We would email you all the requirements across after the discovery call and then talk that through.

How is affordability calculated for an Agreement in Principle?

There are lots of variables to this. Affordability is effectively how much you can borrow, and that’s what the Agreement in Principle certificate gives you. It confirms your buying capacity and whether you can borrow what you want.

Lots of things are taken into account by the bank – typically your income, outgoings and any borrowing you’ve got on credit cards, loans and car finance. Whether you have any children is another thing that they’ll look at.

Then, the big one is your credit score and your credit history. These things determine the success of your Agreement in Principle and how much you can borrow.

Is an Agreement in Principle guaranteed?

It’s absolutely not guaranteed. It’s not a mortgage offer. It’s not a binding contract. An Agreement in Principle is literally ‘in principle’. It’s saying ‘We can offer you a mortgage subject to a full assessment, full application and all the documents being assessed.’ We have to back up everything that’s being told to the lender.

There’s a property valuation, as well. So there are reasons you could get declined after an Agreement in Principle.

Can my mortgage be declined after an Agreement in Principle?

Yes, and that might be because the information wasn’t accurate. Some advisors may provide you with an Agreement in Principle without asking for any documents.

That might sound great, because you can get it really quickly. But it’s risky because they haven’t seen any evidence of your income, or your credit report. There are so many reasons why that could cause issues when you then do a full mortgage application.

If you’re paid in bonuses, overtime or commission, you’ve got financial commitments that weren’t disclosed or accurate, or your credit card balances haven’t been included, you could get declined on the full mortgage application, even after an Agreement in Principle.

The majority of our approved mortgages are with the first lender we approach. That’s because we get those documents and information up front. We do the full due diligence, working with the lender so you don’t need to apply with multiple different banks.

We make sure that Agreement in Principle holds credibility – it’s not just something anyone could get.

Can I get an Agreement in Principle if I’m a First Time Buyer?

Yes, absolutely. It’s even more important as a First Time Buyer. You’ve never been through the process before – you have no idea what you can borrow or what access you have to lenders.

Talk to a mortgage advisor who typically helps First Time Buyers. We can assist you with getting the documents together and getting you an Agreement in Principle so you can confidently go house hunting – because that’s the exciting part.

How does credit score affect an Agreement in Principle?

Your credit score and your credit report will impact the lenders and the options available to you. It might change the deposit amount you need to contribute. It might change the interest rate you pay and the lenders you can apply with.

Bad credit can affect you getting an Agreement in Principle, but that’s the main reason to get one – to test the waters around your credit score. Most banks and building societies do a soft credit check at the point of an Agreement in Principle, looking at your credit score, your credit profile to see if they are still able to lend to you.

The answer might be no – but that’s not necessarily a problem. We might be trying to see who the most competitive lender is, so we might try one or two high street banks.

Depending on the severity of your credit, we might need to look at a more specialist lender – even an adverse credit lender. You may start to see interest rates going up and criteria tightening.

It all depends on the detail. We need to know how many late payments there were. Did they go into default status? If so, what was the balance? What was the reason behind it? How recent was it? Has it been cleared since?

County Court Judgements (CCJs), Individual Voluntary Agreements (IVAs) or debt management plans can all affect your credit score, which then in turn can affect an Agreement in Principle.

Again, that’s why we gather that information up front to make sure that the Agreement in Principle is ultimately with a lender that’s willing to lend to you.

Is it harder to get an Agreement in Principle if I’m self-employed?

It can be, because getting a mortgage as a whole is a little bit more difficult if you’re self-employed. It comes down to how banks treat the self-employed versus employed.

Typically your business needs to have been running for a year or two, maybe even three. Whereas if you’re employed, you just need a payslip or a contract. Each bank treats the self-employed differently, so it’s even more important to talk to a mortgage advisor. We understand how to get an Agreement in Principle that suits your specific situation.

If you’re a sole trader, lenders might ask for particular documents. If you’re a limited company, there are different ways they can view your income. There are lots of possibilities, whereas an employed application is a little bit more straightforward.

I’ve been declined an Agreement in Principle. What should I do?

It really depends on why you’ve been declined. It could be because of your credit score.
If that’s the case, an advisor can help you find a lender that’s more suitable.

It might just be affordability, and so we just need to apply with a lender who’s willing to lend you the amount you need. If the lender is strict on your affordability, they’re going to decline the Agreement in Principle.

It doesn’t mean there’s an issue with your credit score or you’re a bad borrower. It might just be that you’ve exceeded the maximum amount you can borrow with that lender. We can look at those options for you. Lenders really vary in how much they’ll lend you. Their criteria are all very different, which is why it’s important to talk to a broker like us with access to the wider market.

We can go to more than 70 banks and building societies, looking at your circumstances and making a recommendation that will be competitive for your situation.

What are the benefits of getting an Agreement in Principle with a mortgage broker?

You can just obtain an Agreement in Principle by punching a few numbers into a calculator online, sadly. But that can cause so many issues, because they are very basic.

We often end up picking up the pieces when people have gone through that process. They run some numbers, get pre-approved for however many thousands of pounds, and go off looking at properties using that budget.

But that bank hasn’t seen any of the documents. They’ve not done a telephone call with you and understood your finances, your outgoings and your circumstances. In the end, people find that they can’t actually borrow that amount – they just weren’t approaching the right bank. So that Agreement in Principle was redundant, in all honesty.

A mortgage broker will have a discovery call with you to really understand what you’re looking to do. We can confirm on the phone roughly how much you might be able to borrow. But the key difference is we’ve done that call and we’ll ask for some documents.

We’ll look through your pay slips, bank statements and identification and make sure everything adds up – and then, your Agreement in Principle is valid. Amongst other things, we can look at other mortgage deals that other banks might not be able to offer.

There are many other benefits to using a mortgage broker, but with an Agreement in Principle, it’s all about approval.

You’ll have peace of mind that when you do that exciting part, the house hunting, you can buy at that value and you’re not going to have problems further down the line. That’s the real, key benefit of using a broker.

Approved by The Openwork Partnership on 26/03/2025