What is a Mortgage Agreement in Principle?

25 May 2021

When it comes to buying a house in any form one of the most stressful elements is always, obtaining a mortgage. Just like with most aspects of buying a home, being initially prepared can be of significant help, this is where a mortgage agreement can be beneficial. Here we look at what a mortgage agreement in principle is, how you can obtain one and what the pros and cons of having one is.

Mortgage Agreement in Principle: Everything You Need To Know

An agreement in principle, sometimes referred to as a ‘decision in principle’, is an agreement that sees a lender state what they may be prepared to loan you based on the specific information you give them. Providing information such as your income will enable your lender to decide if you are appropriate for a mortgage and for what value. 

When you request an agreement in principle from a mortgage lender they will ask you to provide the following

• Your income details including payslips or accounts if you are self-employed
• Information on your debt and spending
• Details of any credit agreements you may have
• Three years of previous addresses

The Difference Between an Agreement in Principle and a Mortgage Offer

A mortgage agreement in principle is an indication of what a lender may be prepared to offer you as a loan to buy a property. In comparison, a mortgage offer states the amount your lender will definitely loan you, the interest rate you’ll pay and the term of your mortgage. 

The mortgage offer comes after you have completed your application, only if your lender is satisfied that you meet their criteria.

Getting a Mortgage Agreement in Principle

As well as providing these details for your lender, they will also need to know what size of deposit you have and will undertake a credit score to decide if you are a good candidate for lending to. Before applying for a mortgage agreement in principle, the first thing to do is decide on your budget. 

Debt will always affect your borrowing capability, so look deep into your finances and attempt to eliminate any outstanding debts before applying for a mortgage of an agreement in principle.

Next, use an online mortgage to get an idea of how much you potentially can borrow. 

Once you have sorted your finances and worked out the maximum price you are able to pay for your new property, you are ready to look for a mortgage agreement in principle. 

Speaking to a lender or mortgage broker can help you decipher mortgage products and interest rates that will work for you.

How Long Does It Take To Get a Mortgage Agreement in Principle?

It can take as little as 15 minutes to get a mortgage agreement in principle online. However, in order to obtain one as quick as that, you will need to have all the documents and information on hand that your lender requires. If your credit file flags up for any concerns or your lender needs to take a closer look at your paperwork it can take between a few hours and a few days to receive your agreement in principle.

Is a Mortgage in Principle a Good Sign?

A mortgage in principle is a positive sign that you will be able to secure the mortgage you require, but it is not a guarantee as such. It is possible to still be rejected for a mortgage when you come to complete your application, once your lender undertakes the full underwriting process.

Overall however, having a mortgage agreement in principle puts you in a great position as a buyer, because your seller’s estate agent and the vendor themselves will know you are committed.

In such a busy property market, a seller who sees you are ready to proceed quickly with a mortgage agreement in principle is more likely to accept your offer over those who are not in a position to move. Furthermore, if you have had issues previously securing credit, getting an agreement in principle can provide you with added peace of mind that your purchase should be available.

Do You Need a Mortgage Agreement in Principle to Make An Offer?

A mortgage agreement in principle is not mandatory and you do not need it to make an offer however, having one in place can place you in a strong position when it comes to sellers and estate agents.

• Having an agreement in principle in place:
• Shows you are serious about buying a property
• Can speed up the sales process as your lender already has the information they require

Tips for getting a mortgage agreement in principle:

• Mortgage agreements in principle do lapse after a period of time, therefore securing one too early in the process can mean you have to do it all over again if you don’t find a property quick enough to buy.
• If you are planning to change jobs after obtaining a mortgage agreement in principle but before completing your application it is advised you wait until you are in your new role. A change in circumstances such as employment can affect your ability to borrow. 

How Long is a Mortgage Agreement in Principle Valid For?

Mortgage agreements in principle are usually valid for between 60 and 90 days.

You may want to check in with your lender if any of your details or circumstances change during that period as you may need to request another agreement in principle. You will also need to request for another one if you don’t manage to find a property to buy in that timeframe.

However, if your circumstances stay the same, this should be a simple process if you remain with the same lender.

Can a Mortgage Be Declined After an Agreement in Principle?

A mortgage agreement in principle is not a definite guarantee you will secure the funding you need, however it is a very good sign.

You can still be rejected a full mortgage application by your lender, even if they have issued you with an agreement in principle.

This could be because:

• The ‘soft’ credit search did not flag up concerns that your ‘hard’ search later did
• Your income or employment circumstances have changed since you received your agreement in principle
• You have taken out additional credit since your agreement in principle
• You missed payments since your agreement in principle

Shared Ownership and a Mortgage Agreement in Principle

If you are choosing to buy a property through the Help to Buy Shared Ownership scheme, a mortgage agreement in principle can be helpful.

Not all lenders offer Shared Ownership mortgages, but if you have an agreement in principle, this shows the housing association selling a share of the property you are a serious buyer. Some housing associations will require an agreement in principle before offering you the property. Also, if you already own a property through Shared Ownership and you want to purchase a bigger share, you can obtain a mortgage agreement in principle the same way.