You have found the flat. You have mentally rearranged the living room and worked out where the bins go. Then the estate agent asks whether you have a mortgage in principle, and the conversation goes quiet.
An agreement in principle (AIP) — sometimes called a decision in principle or a mortgage promise — is a lender's early indication of how much it might lend you. It takes minutes to request, but it changes how you are treated. Sellers and agents read it as evidence that you are serious, and it gives you a realistic budget before you fall for somewhere you cannot afford.
It is not a mortgage offer, and it guarantees nothing. Even so, having one in place before you start offering is one of the most useful things a first-time buyer can do.
What an agreement in principle actually tells you
An AIP is based on the information you provide and a credit check. Many lenders use a soft search at this stage, which only you can see on your credit file; some carry out a full search instead. If you plan to compare several lenders, ask each one which type it uses before you apply, because a cluster of hard searches in a short period can work against you.
Most AIPs stay valid for around 60 to 90 days, though this varies by lender. An AIP is not a promise to lend. Your full application still has to pass affordability checks and underwriting, and the property has to be valued at or above the price you have agreed to pay. If you change jobs, take on a car loan, or the surveyor values the house lower than your offer, the lender can walk away.
Be accurate on the form. If you later declare a different salary, or a credit card you forgot about, your borrowing can drop — or the application can be declined outright.
Sort your paperwork before you apply
Gather the following before you request an AIP or speak to a broker. Having them ready speeds up the full application later and quietly signals to an estate agent that you know what you are doing.
- Photo ID — passport or driving licence.
- Proof of address — a recent utility bill, council tax bill or bank statement, usually dated within the last three months.
- Proof of income — your last three months' payslips, plus a P60 if you have one.
- If you are self-employed — SA302s and tax year overviews, or accounts, typically covering two to three years.
- Bank statements — three to six months, for the accounts your salary and deposit sit in.
- Proof of deposit — savings statements, or a letter from anyone gifting you money confirming it is a gift rather than a loan.
- Details of existing commitments — credit cards, loans, car finance, student loan, childcare costs.
A single folder, physical or on your laptop, saves a lot of back-and-forth. Lenders will ask for the same documents again at full application, and again if you switch lender partway through.
Work out your budget and check your credit file first
What lenders look at
Lenders assess affordability rather than simply multiplying your salary, but income multiples still give you a rough starting point: many lend around four to four and a half times income, and a few go higher for certain professions or larger salaries. They also stress test your finances, checking you could still pay if rates rose after you took the deal. Existing commitments eat into that. A £300 monthly car payment can knock a meaningful chunk off your maximum borrowing.
Deposit
Deposits typically start at five per cent, although ten per cent opens up more lenders and generally better rates. If family are helping, get the paperwork sorted early. Lenders want to see a letter confirming the money is a gift, and sometimes ID from the person giving it.
Your credit report
Check your report with the three main agencies before applying, and dispute anything that is wrong — a settled account still showing as open, or an address you never lived at. Register on the electoral roll at your current address, which is one of the simplest steps you can take. Then keep things quiet: pay everything on time, avoid new credit applications, and do not finance a car the week before you apply.
If your situation is complicated — self-employed with irregular income, past credit problems, or a deposit coming from overseas — speak to a regulated mortgage broker. Mortgage advice is regulated for good reason, and a broker's fee is often worth it when the alternative is a declined application on your record.
Compare lenders on more than the headline rate
The cheapest-looking rate is not always the cheapest deal.
Fees
Add up the arrangement fee, valuation fee, any legal fees and the total interest you would pay over the fixed period. A deal at 4.2 per cent with a £999 arrangement fee can cost more over two years than 4.45 per cent with no fee, particularly on a smaller loan. Run the numbers on the total, not the headline.
Criteria
Two lenders with identical rates may treat you very differently. Check the small print on minimum income, maximum age at the end of the term, new-build properties, self-employed applicants and adverse credit. There is no point spending an afternoon on an AIP with a lender that will not consider your circumstances.
Where to look
Comparison sites are a decent starting point, but they do not always list broker-only deals. A whole-of-market broker can see products you cannot apply for directly. If you would rather arrange it yourself, request AIPs from two or three lenders and confirm what each credit check leaves on your file.
Use your agreement in principle to strengthen an offer
Have the AIP in place before you view, or at the very least before you offer. Many agents will not book viewings without one, and most sellers will not take an offer seriously.
When you make an offer, put the detail in writing — the amount, your AIP lender and figure, your deposit, and your position. For example: "We are offering £245,000. We have an agreement in principle for £220,000 with a ten per cent deposit, we are chain-free and renting, and our solicitor is ready to instruct." Specifics beat enthusiasm every time.
A few things worth keeping in mind:
- Do not offer above your AIP without a plan. You may be able to increase your deposit, use a different lender or ask a broker to check who lends more at your income.
- Sellers know an AIP is not a guarantee. Being organised — documents ready, solicitor chosen, mortgage broker on standby — carries real weight in a competitive situation.
- If your AIP is more than a couple of months old, or your circumstances have changed, refresh it before offering. An expired AIP looks careless.
Next steps: a simple plan for the next fortnight
- Check your credit report, fix any errors and register on the electoral roll.
- Gather your documents into one folder, including proof of deposit.
- Talk to a regulated broker, or compare AIPs from two or three lenders directly.
- Get your AIP, note the expiry date, and keep your finances steady until you complete.
- Start viewing with a clear budget, and tell agents up front that you are proceedable.
A mortgage in principle will not win you a house on its own, but it turns you from a browser into a buyer. It also means your first proper conversation with an estate agent is about the property rather than your paperwork. Give it a couple of evenings, and the rest of the process becomes noticeably less stressful. And if your finances are anything other than straightforward, take regulated mortgage advice before you commit to a lender.
Photo: Tumisu / Pixabay
