Guide

What is an Agreement in Principle (AIP)?

If you have started looking at properties, or even just thinking seriously about buying, you have probably come across the phrase Agreement in Principle. Estate agents often ask whether you have one before they will book viewings. Sellers feel more confident accepting offers from buyers who can show one. It sounds official and slightly daunting.

It is actually quite simple, and getting one costs you nothing.

What is an Agreement in Principle?

An Agreement in Principle (also called a Decision in Principle, a Mortgage in Principle, or an AIP) is a written indication from a lender that they would, in principle, be willing to lend you a certain amount of money based on the information you have provided.

It is not a formal mortgage offer. It is not a guarantee that you will get a mortgage. But it is a credible, documented indication of your borrowing capacity, based on a real assessment of your financial situation.

Think of it as a lender saying: "Based on what you have told us and what we have seen, we would probably lend you up to this amount." The formal offer comes later, once you have found a property and made a full application.

What does getting an AIP involve?

To issue an AIP, a lender will ask you for some basic information. This typically includes your income, your employment status, your monthly outgoings, and any existing credit commitments. They will also run a credit check.

There are two types of credit check: a soft search and a hard search. A soft search is not visible to other lenders and does not affect your credit score. A hard search does leave a mark on your credit file, and multiple hard searches in a short period can raise a flag for lenders.

Many lenders now offer AIPs using soft searches, which is preferable if you are shopping around. It is worth checking which type a lender uses before you apply. A mortgage adviser can tell you which lenders carry out soft searches and help you avoid unnecessary marks on your credit file.

How long does an AIP last?

Most Agreements in Principle are valid for between 30 and 90 days, depending on the lender. If yours expires before you find a property, you can usually renew it. Your financial circumstances and the lender's rates may be reassessed at that point, so it is worth getting your AIP at a sensible point in your search rather than months before you are ready to make an offer.

Why do estate agents ask for one?

Estate agents work on behalf of the seller. When you make an offer on a property, the agent needs to assess how serious and credible a buyer you are before they recommend your offer to their client.

A buyer with an AIP has already had a lender look at their finances and confirm they could borrow the relevant amount. That is meaningfully different from a buyer who has not yet spoken to a lender. It tells the seller that you are not wasting their time and that the sale is less likely to fall through at the finance stage.

In competitive markets, where there may be multiple offers on a desirable property, having an AIP can make the difference between your offer being taken seriously and being passed over.

Does an AIP guarantee you will get a mortgage?

No. This is important to understand.

An AIP is based on information you have provided and a credit check, but it is not the same as a full mortgage application. The formal underwriting process, which happens after you have had an offer accepted on a specific property, goes into considerably more detail. The lender will verify your income with payslips or accounts, assess the property itself through a valuation, and review your application in full.

There are a number of reasons a full mortgage application might not succeed even after an AIP has been issued. If you provided inaccurate information, if your circumstances have changed, if the property turns out to have issues, or if the lender's criteria shift between your AIP and your application, the outcome may be different.

This is not a reason to be anxious. For the vast majority of buyers, the AIP is a reliable guide to what they can borrow, and the formal application confirms it. Just be aware that an AIP is a starting point, not a finish line.

Should you get an AIP before you start viewing properties?

Yes, in most cases. Here is why.

• It gives you confidence. Knowing roughly how much you can borrow means you can focus your search on properties in a realistic price range, rather than falling in love with something you cannot afford.
• It saves time. Estate agents are more willing to give their time to buyers who have already taken steps to get their finances in order. Some will not book viewings without one.
• It speeds up the process when you find the right property. If you have already had initial conversations with a lender or an adviser and have your AIP in place, you are several steps ahead when it comes to making an offer and progressing toward exchange.

Where do you get an AIP?

You can get an AIP directly from a lender, or through a mortgage adviser. Going through an adviser is usually better for a few reasons.

An adviser can assess your situation across the whole market and identify which lenders are most likely to approve your application at the best rate. Rather than applying to one lender and hoping for the best, an adviser directs you toward the right lender from the start. This reduces the risk of unnecessary credit searches and means the AIP you get is more likely to reflect what a successful full application would look like.

If you get an AIP directly from a bank and then later discover a better deal elsewhere, you may find yourself starting the process again, including another credit check.

If you would like help getting an AIP or want to understand exactly what you could borrow before you start your search, speaking to an adviser is the most efficient first step.

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This article is for informational purposes only and does not constitute financial advice. Always speak to a qualified mortgage adviser before making decisions about borrowing.