Agreement in Principle

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Agreement in Principle (Part 1)

Diarmuid Phoenix explains how an Agreement in Principle works in the first of two episodes on this topic.

What is an Agreement in Principle or AIP?

We tend to call it a Decision in Principle, or an AIP – Agreement in Principle. They’re the same thing. It’s essentially an advanced credit check coupled with an affordability check. It’s the first step towards a full mortgage application.

Unlike a typical credit check for something like a credit card, applicants for an AIP will often have to provide evidence of income with bank statements or pay slips. A mortgage broker will want to see these before making the application.

It’s just to make sure that there are no affordability issues. It saves time, by planning ahead and having all the ducks in a row first.

What should I do if my estate agent is asking to see my Agreement in Principle or Decision in Principle? How do I get one?

This happens almost every time. The first thing to do is speak to a mortgage advisor. Most estate agents will insist on potential purchasers being approved in principle before entertaining an offer on a property.

The reason for this is that in the past, people were putting offers in on properties who had no business doing so, as they had no chance of securing a mortgage. They might have had bad credit or CCJs, or they just couldn’t afford it. Not only does that waste the agent’s and vendor’s time, it also could unnecessarily hike the bidding on properties.

So speak to a mortgage advisor and make sure you’ve got an Agreement in Principle before you go looking at properties.

Do I have to have an Agreement in Principle through the estate agent I’m looking to purchase through?

No, not at all. Many estate agents do have their own in-house mortgage brokers, or an affiliation with a local broker firm – they offer those services to potential purchasers.

But a lot of prospective buyers already have secured their Decision in Principle either directly with a lender or through another broker. That’s absolutely fine too. It’s completely up to the client where they get their Decision in Principle from – but it’s good to get one before you start looking.

How reliable is an Agreement in Principle? How long does an AIP or DIP last?

They’re not going to necessarily guarantee a mortgage offer, but a Decision in Principle is pretty reliable – in the sense that it reassures the estate agent around accepting offers from you on behalf of their vendors.

How long the Agreement lasts will vary. For standard mortgages it typically lasts 90 days or three months, although with some lenders it will only last 30 days.

Can I make an offer with an Agreement in Principle?

It’s usually a prerequisite with estate agents in order to make an offer on a property. Once the agents are working on behalf of the vendor, they reserve the right not to accept any offer.

But a Decision in Principle will usually satisfy them that the purchaser is genuine and has the financial capability of securing the mortgage once the offer has been accepted.

Does an AIP or DIP mean you’ll get a mortgage?

No, sadly not. This is just the first step and it’s essentially a credit check, combined with an affordability calculator. The mortgage offer will be subject to full underwriting, whereby the client will have to submit pay slips and bank statements.

If you’re self-employed, it will be SA302s, tax calculations and potentially other documentation, which will be assessed manually by a human underwriter.

At this stage, certain red flags could arise – like evidence of poor money management on the bank statements, which might make a lender reconsider. Decision in Principle acceptance is definitely a positive sign, but there are other hurdles to jump over to make sure the mortgage offer is secured.

Will I need a credit check? Does a Decision in Principle affect credit score?

Yes, a Decision in Principle involves an internal credit check. There are two types of credit searches – leaving either a soft footprint or a hard footprint.

Some lenders for Decision in Principle applications undertake soft searches, which means that any declined applications won’t adversely affect credit scores. That’s the ideal situation.
You want to be able to apply for something where even if it gets knocked back, it’s not going to affect your credit file.

The opposite is the case with hard searches. If you apply for a Decision in Principle where the lender is doing a hard search, and you’re then declined, it can adversely affect your credit score. A mortgage advisor knows their way around the lenders and which ones offer soft searches.

How do I apply for an AIP or a DIP? How long does this take?

It can either be done directly with a lender or through a mortgage broker. We would obviously recommend the latter. It doesn’t take long at all. If you’ve provided the relevant documentation in advance, a decision can be instantaneous as it’s usually automated.

Occasionally, if there’s something unusual or unclear about the application, it can be referred to a manual underwriter for review. That may take a day or two, but there isn’t usually a long wait for an answer once you’ve made the application.

Is there anything else we need to know before we come back for part two?

I’ll reiterate that it’s best to speak to a mortgage advisor. If you undertake this yourself, you may inadvertently cause yourself avoidable problems, such as a declined Decision in Principle with a hard search which would negatively impact your credit score.

An experienced broker can give you tips and advice to make sure you get an appropriate Decision in Principle. Even if you’re not accepted, we would make sure it’s a soft search and not a hard footprint that could disrupt your future applications.

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Agreement in Principle (Part 2)

Diarmuid Phoenix is back to continue the conversation around an Agreement in Principle. Episode two of two, recorded in January 2025.

When should I get an Agreement in Principle?

Ideally you should aim to get your DiP in place as soon as you start looking for a property. If you don’t find a property straight away, you can always reapply for the Decision in Principle when you do find one.

Once a lender issues the Decision in Principle, it lasts for a certain amount of time, typically 30 or 90 days, and there’s no issue with reapplying for one. You just want to avoid finding the perfect house or our apartment and then having to reapply at that point.

Or, you might be applying for the first time and then run into issues which delay things. You could ultimately end up losing out on the property that you wanted. So get your Decision in Principle application in place before you start looking.

What information do I need to get an Agreement in Principle?

You’ll need to supply your broker with evidence of your income – via pay slips, bank statements, SA302s if you’re self-employed and tax year overviews. You may possibly need proof of deposit as well – it depends on the broker and their compliance rules.

You’re likely to need to complete some information in what we call a fact-find, so that your broker can find the most suitable lender for you.

How is affordability calculated for an Agreement in Principle or Decision in Principle?

Each lender has their own internal affordability calculator, whose intricate nature they keep to themselves. We don’t know what goes on behind the scenes there, but it’ll often be similar to the calculators on their websites that you can complete yourself. They can be a little bit more detailed, however.

Is an Agreement in Principle guaranteed? Can my mortgage be declined after an Agreement in Principle?

They’re definitely not guaranteed. A mortgage application can be declined even after the Decision in Principle or Agreement in Principle has been accepted.

I used an example earlier about issues arising around people’s bank statements. The same applies here, but you could also have a scenario where a Decision in Principle is accepted initially, but when the underwriter manually reviews the full mortgage application, they find some issue.

There might be something regarding the property itself or a change in the client’s circumstances. These could result in the mortgage being declined or not proceeding.

So being accepted for an Agreement in Principle is definitely a positive sign, but it’s definitely no guarantee that you will end up with the mortgage.

Can I get an Agreement in Principle if I’m a First Time Buyer?

Anyone can apply for a Decision in Principle, First Time Buyers included. It doesn’t matter whether you’re buying your first home, you’re remortgaging or you’re an experienced landlord with an extensive property portfolio. Everybody has to apply in the same way.

How will bad credit affect an Agreement in Principle?

This is where you can fall at the first hurdle. Missed or late loan payments or credit card payments, for example, will be picked up at the Agreement in Principle stage and can result in the application being declined.

Bad credit in general can disrupt applications. If you think you might fall into this category, and you’ve had any kind of difficulties in terms of credit agreements, I would suggest getting a copy of your report from the likes of Experian or Equifax. Checkmyfile.com is another one.

Then, let your mortgage advisor run their eyes over it. It could be something extremely minor, but if you don’t check it out your Decision in Principle could be declined. Having a broker look at it first allows us to perhaps advise you to do something to improve things.

For example, if you’ve got a credit card and you’ve been maxing it out, even if it has a low limit, that can reduce your score. It could be something even simpler – like not being on the electoral roll.

So speak to your advisor, download your credit report and get it looked at before proceeding.

Is it harder to get an Agreement in Principle or Decision in Principle if I’m self-employed?

It’s no different in terms of the actual application. Where it might become more tricky is not necessarily in relation to the application, but just that for self-employed people it can take a longer to get your documentation together.

Most people who are employed receive their pay slips on a monthly or weekly basis, depending on their job. They’ve usually got them ready and waiting, whereas self-employed people either have to go to their accountant or their HMRC gateway website.

That can delay things or make it slightly more difficult to get the proof of income you need for an Agreement in Principle. But in terms of the actual application itself, it’s no different.

I’ve been declined in Agreement in Principle. What can I do?

We need to find out why you’ve been declined. Sometimes a lender will be able to tell us what’s resulted in the declined application. It could be something that showed up on the credit report that you haven’t disclosed or you’d forgotten about.

It could be the lender’s internal scoring system – again they don’t give us much information about that. Your credit score could be okay but the internal scoring system might not pass.
Your credit report can often help us identify the issue.

Once we know what the issue is, either from the credit report or directly from the lender, we can take measures to rectify it. That may take some time. It could take anything up to seven years for something to fall off your credit file, or it could be something we can immediately improve.

What are the benefits of getting an AIP with a mortgage broker? Have you got anything else to add?

Apart from all the reasons I’ve mentioned already, starting out the mortgage journey can be daunting, particularly for First Time Buyers. The Agreement in Principle is the beginning of that journey, so you want to get off on the right foot.

Speaking to an experienced broker will allow you to do just that. We can steer you away from making mistakes that can cost you time and money. That alone is reason enough to speak to a broker.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.

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