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Mortgage Agreement in Principle

Need an agreement in principle to secure your dream property, demonstrate that your offer is serious, or be poised to complete when the time comes? Let's explain how you can get a reliable agreement in principle through an online application.

Almas Uddin
Almas Uddin

Founder and Mortgage Advisor

Almas Uddin2024-06-14
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Mortgage Agreement in Principle

Agreements in principle are the first step in securing a mortgage loan. They are usually relatively fast to apply for and indicate what you will be able to borrow.

Here we'll run through the agreement in principle application process and what information to expect to provide.

For more help with processing your application, give us a call on 0330 304 3040, or drop a message to [email protected].

Do I Need a Mortgage Agreement in Principle?

Usually, it's a good idea. You can get an agreement before you are ready to make a formal offer or finalise your mortgage borrowing.

Lenders will look at your earnings, outgoings, and credit score to decide whether they think they will be able to make you an offer.

These agreements aren't set in stone, so it doesn't guarantee you will get a formal offer to lend. Still, they are a useful bargaining tool if you are negotiating on a house purchase price and can demonstrate that you have mortgage funding already lined up.

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What are the Benefits of Having an Agreement in Principle?

There are a few practical reasons to consider applying for an agreement (AIP):

  • You have confidence you will be able to get the mortgage you need.
  • Estate agents or vendors will be happier to negotiate and know you are a credible buyer.
  • You have better negotiating power.
  • You know how much you're likely to be able to borrow and what it's going to cost per month.

Does an Agreement in Principle Require a Credit Check?

It does, yes. Lenders will check your credit file, and it's worth knowing whether that is a soft or a hard check.

Soft checks don't leave a mark on your credit file, whereas hard checks too. Having lots of hard checks can make it harder to find approval for other borrowings down the line.

How Do I Go About Getting an Agreement in Principle for a Mortgage?

There are two options; applying directly to a bank or provider or through a broker.

The issues with applying directly are that:

  • You are limited only to the products and rates available from that one provider.
  • If you don't fit that specific lender’s criteria, you will be automatically rejected.

We strongly advise seeking help from an experienced broker who will select the best lenders to send your application to and structure it to ensure you have the highest chances of approval.

You will need to provide outline information such as:

  • Your income and debts.
  • How much deposit you have.
  • What property you wish to buy.
  • Your credit rating.
  • How old you are.

Initially, you might not need all of your documentation, but this is always required to back up the information provided before a formal offer to lend can be made.

Documents required include:

  • Proof of your ID and current address.
  • Proof of income - payslips and P60.
  • Filed accounts or tax returns if you are self-employed.
  • Three months of bank statements.
  • Evidence that you have your deposit ready.
  • Details of the property.
  • Estate agent and solicitor's details.

How Does a Mortgage Lender Decide Whether to Offer an AIP?

Lenders will consider multiple factors, including:

  • The Loan to Value - how much you wish to borrow against the value of the property. Higher LTVs are higher risk and less easy to be approved for, so the higher the deposit, the better.
  • Your Loan to Income ratio - with the standard cap on mortgage lending being 4.5 times your annual income.
  • Credit history - if you have adverse credit, you may need to apply to a specialist bad credit lender. Mainstream banks may reject bad credit applications.
  • Income - how much you earn and what type of employment you are in. Lenders have different policies regarding overtime, bonuses, commissions, and allowances in their calculations. If you make a variable income, it is essential to consult a broker to ensure you apply to a lender who will include all of your earnings in your mortgage assessment.
  • Self-employed accounts - if you are self-employed, you will typically need three years of files accounts or tax returns. For newly self-employed people, a broker can help identify lenders who will accept a shorter trading history.
  • Deposit - you need to prove you have the deposit and where it came from. Savings and gifts from immediate family members are the most common and widely accepted.
  • Applicant information - if you are applying with a partner or friend, the lender will assess both parties.

How Valuable is an Agreement in Principle?

As we've mentioned, an AIP isn't a hard and fast guarantee that the lender will extend a mortgage offer to you. It is an initial approval, pending further underwriter’s checks.

However, it is an essential step in the mortgage process and is usually a good sign that your mortgage will be approved.

There are some common reasons a mortgage offer might be refused when you already have an AIP in place:

  • You have provided incorrect information or missed something out in your application.
  • You can't provide the documents required.
  • There has been a change in your credit score since the lender made the AIP.
  • The underwriters have declined the application, usually related to credit scoring.
  • The property is deemed unsuitable - often because it is a non-standard construction or has been down valued by the lender's surveyors.

It is, therefore, crucial to use a broker to ensure you complete all the information accurately and have everything you need to pursue an AIP through to a formal offer.

What Can I Do If an AIP Has Been Refused?

If a lender has rejected your agreement in principle application, likely, you don't meet one of their eligibility requirements. We can advise on a more suitable lender to ensure that doesn't happen again.

Sometimes, a lender will refer a decision in principle. That means there is some issue with the application, or it is outside the standard system's scope.

Most referred AIP applications go to the underwriter, who will manually review the application and decide.

Once your AIP is granted, you can request an agreement in principle certificate.

Can I Get an Agreement in Principle as a First-Time Buyer?

You can, yes. Lenders may have different criteria for first-time buyer applicants. In most cases, the priority is to prove affordability and that you can keep up with the mortgage repayments.

Buy to let mortgages for first-time buyers are also a little stricter and less easy to come by.

How Quickly Can I Get a Mortgage Agreement in Principle?

It depends on how long it takes for the documents to be submitted and how quickly the lender moves.

If your application is straightforward and well within the terms of lending, you will usually get an agreement in principle in a couple of days.

Do I Need to Pay for a Mortgage AIP?

Not usually, no. Give us a call to discuss the type of mortgage you are looking for, and we'll run through the mortgage products and lenders and what sort of costs are associated.

Does a Mortgage Agreement in Principle Expire?

Yes, most AIPs have an expiry date of between 60 and 90 days.

Professional Help with a Mortgage Agreement in Principle

If you're keen to find out what you could borrow and what it would cost, an AIP is a perfect place to start.

Give the mortgage advisors team a call for independent, expert advice on the UK market's best mortgage products. You can reach us at 0330 304 3040 or via email at [email protected].

Almas Uddin
Almas Uddin

Founder and Mortgage Advisor

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FCA disclaimer

The content included in our articles, blogs, web pages and news publications is based on information accurate at the time of writing. Note that policies and criteria can change regularly throughout the UK mortgage lending market, and it remains essential to contact the consultation team to receive up to date guidance. The information included on the Revolution Brokers site is not bespoke to any circumstances or individual application scenarios and therefore is not intended to be used as financial advice. The content we share is designed to be informative and helpful but cannot be relied upon to provide individual advice relevant to your mortgage requirements. All Revolution team members are fully qualified, trained and experienced to provide mortgage advice of an independent nature.

We collaborate with lenders and providers who are regulated, authorised and registered with the Financial Conduct Authority (FCA). Should you require specific mortgage borrowing types, some products such as buy to let mortgages may not be FCA regulated. The Revolution team can provide further information about regulated and unregulated lending as required. Please remember that a mortgage is a debt which is secured against your home or property. Your home can be at risk of repossession if you do not keep up with the repayments or encounter any other difficulties in managing your mortgage borrowing responsibly. This also applies to any remortgage or home loan secured against your property, including equity release products.

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