So, What Is a Mortgage Agreement in Principle?

08 November 2021

What an agreement in principle is

Sometimes referred to as a ‘decision in principle’, an agreement in principle is a document from your mortgage lender, stating how much the lender is prepared to lend you for a mortgage.

This document will help you define what budget you have to make offers on properties, as you’ll know how much you can afford to spend.

How do I receive an agreement in principle?

You can apply for an agreement in principle through your chosen mortgage lender, many have an online application process available.

A mortgage adviser can help you with this and can advise you on the most suitable lender to apply to.

When applying, the lender will check your credit file to establish if you are eligible for a mortgage, and if you are deemed a suitable and ‘safe’ prospect for a mortgage.

You will be required to provide personal information such as your name, date of birth, recent address history and an overview of your income and outgoings.

Is it essential I get an agreement in principle?

It is not a legal requirement to obtain an agreement in principle, therefore you don’t require one to start house-hunting. However, selling estate agents may want to confirm that you have one, as it shows you are serious about buying and therefore can afford the home they are marketing. 

Having an agreement in principle also helps you understand how much you can afford to spend on a property. If you have had credit problems in the past, or if you are a first time buyer and aren’t sure how much of a mortgage is available to you, an agreement in principle can provide added reassurance to help you begin your property search.

Things to consider about agreements in principle

It is essential you remember, an agreement in principle is not a formal mortgage offer, nor is it a guarantee that you will receive a formal mortgage offer. You will only receive a formal mortgage offer when you have had an offer accepted on a property, when your lender will require a satisfactory property valuation and will then delve deeper into your credit history, earnings and expenditure.

The agreement in principle may be subject to change if your personal circumstances alter in any way, ie., you change jobs, you decide to buy with a partner or friend, or if a larger deposit becomes available to you.