What is an Agreement in Principle – and do I need one?

If you’re thinking about buying a home, you’ve probably come across the term Agreement in Principle – sometimes called an AIP, Decision in Principle or Mortgage in Principle.

But what actually is it, and when do you need one?

What is an Agreement in Principle?

An Agreement in Principle is an indication from a mortgage lender of how much they may be prepared to lend you, based on some initial information about you and your finances.

It isn’t a formal mortgage offer and it doesn’t guarantee that the lender will ultimately approve your mortgage. A full application will involve further checks, including a more detailed assessment of your circumstances and the property you want to buy.

What it does give you is a useful starting point when you’re beginning your property search.

Why is an Agreement in Principle useful?

Having an AIP can help you understand the price range you may be able to consider before you start seriously looking at properties.

It can also show an estate agent that you’ve started looking at your mortgage options and are in a position to move forward. In some cases, an estate agent may ask whether you have an AIP when you want to make an offer on a property.

Most importantly, it can help make sure your property search is based on a realistic understanding of your finances.

How much can I borrow?

An AIP will usually give you an indication of the amount a particular lender may be willing to lend, but this can vary significantly between lenders.

Mortgage affordability isn’t simply based on multiplying your salary by a set number. Lenders can take into account things such as your income, regular financial commitments, existing borrowing, dependants and the term of the mortgage.

This means one lender may be prepared to lend you a different amount to another.

It’s also worth remembering that how much you can borrow and how much you feel comfortable paying each month aren't necessarily the same thing.

Does an Agreement in Principle affect my credit score?

It depends on the lender.

Some lenders carry out a soft credit search, which isn't normally visible to other lenders, while others may carry out a hard credit search, which can leave a record on your credit file.

It’s worth understanding which type of search will be completed before an AIP is submitted.

How long does an Agreement in Principle last?

This varies between lenders, but an AIP will normally only be valid for a set period.

If it expires before you find a property, it may be possible to obtain another one. Your circumstances should always be reviewed again if anything has changed since the original AIP was completed.

Do I need an Agreement in Principle before viewing houses?

Not necessarily.

You can start looking at properties without one, but having an AIP before you get too far into your search can be really useful.

It gives you a clearer idea of your potential borrowing and means you’re better prepared if you find a property you want to make an offer on.

When should I get one?

A good time to look at an Agreement in Principle is when buying a home starts to become a genuine possibility rather than just an idea.

You don't necessarily need to wait until you've found the perfect property.

Understanding your mortgage options earlier can help you work out what may be achievable, what your monthly payments could look like and whether there’s anything you need to do before you're ready to buy.

Not quite ready for an Agreement in Principle?

That’s completely fine too.

Sometimes the best first step is simply understanding what your options could look like.

Whether you’re wondering how much you might be able to borrow, how much deposit you’ll need or what you could comfortably afford each month, having those conversations early can help you make a plan.

Bring your plans, I’ll help with the rest.