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So you’ve decided to start your buying journey? Or maybe you haven’t yet started & would like to learn a little more before jumping into the process?
Let’s run you through what an agreement in principle is, how you can get one and whether you actually need one.
Overview of topics being discussed:
You might hear the terms ‘agreement in principle’, ‘decision in principle’ and ‘mortgage in principle’ – they’re all the same thing just to avoid any confusion.
This is basically an agreement from a bank or building society to lend you X amount of money, subject to a satisfactory mortgage valuation and full underwriting.
An agreement in principle is essentially the first step of any full mortgage application. Once the full mortgage application is submitted, the lender will expect you or your broker to send in any documents to back up the information that you’ve put on this initial agreement.
It’s best to have an agreement in principle in place before you go out looking at properties, or at least get a good idea of how much you can borrow, as this will avoid any upsets down the line. Needless to say, you’ll also likely get asked by estate agents for your agreement in principle certificate once you actually come to put an offer in on the property – this will give the seller peace of mind that you’re ‘good to go’.
At Rosehill, we take pride in building long-term relationships with our clients. We don’t see ourselves as just a mortgage broker, but rather a trusted partner who will be with you every step of the way.
At Rosehill, we take pride in building long-term relationships with our clients. We don’t see ourselves as just a mortgage broker, but rather a trusted partner who will be with you every step of the way.
So, what’s the process?
Well, you’re going to need some basic information, such as three years’ address history & one year’s self-employment or employment history.
If you don’t have this information, then just speak to your broker & they can advise accordingly.
Once you have these details gathered, your broker can look to have your agreement in principle processed with the most suitable lender at that point in time.
The simple answer here is it depends.
Once your agreement in principle is submitted, the lender will carry out their credit check on you.
This could either be a ‘soft footprint’ or ‘hard footprint’ credit check. The difference being that a soft footprint credit check will not impact your credit score, whereas a hard footprint credit check will impact your credit score.
Your broker should confirm what type of check this will be for you before the agreement in principle is submitted.
Once your agreement in principle is submitted. This will either come back as an ‘accept’, a ‘refer’ or a ‘decline’.
If it’s accepted, you can go out & put an offer in on the property you love with the peace of mind that you have a lender that’s willing to lend you the money that you need (subject to a satisfactory mortgage valuation & full underwriting).
If the agreement in principle comes back as a refer or decline, then it’s down to your broker to call the lender find out what went wrong (or yourself if you’re proceeding directly).
There are various reasons why an agreement in principle can come back as a referral or a decline, but your broker is there to help you find a solution.
If one lender does decline your application for an agreement in principle, there’ll be other options out there – don’t lose hope!
An agreement in principle won’t last forever.
It’s likely that your agreement in principle will expire within three to six months, depending on the lender.
Now, that doesn’t necessarily mean that you need to get another agreement in principle in place as soon as this expires because, particularly if this is a hard footprint credit check, as you don’t want to be impacting your credit score over and over again.
So, is there anything else to consider when looking to get an agreement in principle in place?
Lots of people, as a starting point, will go to whoever they bank with to get this agreement in place.
It’s not to say that there’s anything wrong with doing this, but it does come with its limitations – the main limitation being that whoever you go to at that particular bank or building society can only advise you on their products and their criteria.
Not ideal, right?
All banks have different criteria, depending on your particular circumstances, so we strongly advise you speak to a broker, early in the process, to understand which lenders are most suitable for you.
We would explain, in detail, why we’ve recommended a certain lender and we’d hold your hand step-by-step throughout the process.
So, to finish off, I’d just like to say that preparation is key when you’re looking to buy your first home, when you’re looking to move home or you’re looking to buy an investment property.
Especially where you’re self-employed, as your income is likely a little more complex than a standard employed applicant.
If you speak with a great broker as early into the process as you can, you’ll be able to understand which lenders are most suitable to you and the borrowing power that you have.
Do you need an agreement in principle before you start your search?
No.
Will having an agreement in principle help you in process?
We definitely believe so.
We’re pleased to offer fee‑free advice for the vast majority of residential mortgage applications. For full details, visit our fees page or get in touch.
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As a mortgage is secured against your home or property, it may be repossessed if you do not keep up the mortgage repayments. Think carefully before securing any other debts against your home or property. The Financial Conduct Authority does not regulate commercial buy to lets and some forms of commercial mortgages. You may have to pay an early repayment charge to your existing lender if you re-mortgage
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Rose Hill Financial Services Ltd is authorised and regulated by the Financial Conduct Authority. You can find us on the Financial Services Register https://register.fca.org.uk/ under reference 912303. Registered office address: 1 Bell Street, 2nd Floor, London, England, NW1 5BY. Registered in England and Wales. Company registration no: 11997519.
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