Agreement in Principle

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Agreement in Principle, Yellow Brick Mortgages
Agreement in Principle, Yellow Brick Mortgages

Agreement in Principle

Gethin Davies and Leila Ouchikh talk all about Agreements in Principle, answering some Frequently Googled Questions.

Podcast approved by The Openwork Partnership on [xx/xx/xxxx].

What is an Agreement in Principle?

What confuses a lot of people is that it’s got multiple names – it’s also known as a Mortgage in Principle, a Decision in Principle, a Mortgage Promise or a Lender Promise

Essentially it is an indication from a lender of how much they will potentially lend to you.

What should I do if my estate agent is asking for my Agreement in Principle? How do I get one?

Speak with a mortgage broker – and you can also go direct to your bank, although mortgage brokers tend to have a broader view of the market.

More often than not, it’s a free service and you’ll get a certificate to show your estate agent. It proves you are in a position to proceed as a credible buyer.

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

No, you don’t. It’s your choice as a buyer where you borrow your money from. You might want to do that by yourself and navigate the market – although it can be quite difficult. You might go to your own bank or get the assistance of a broker.

But you’re not tied to the estate agent and you certainly shouldn’t feel under pressure to get an agreement directly through them.

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How reliable is an Agreement in Principle? How long does this last?

From experience, an Agreement in Principle is quite reliable. I normally say to people that it’s 90% reliable – obviously, the lender still has to do a valuation on the property and assess your case. An Agreement in Principle is essentially a credit check, to create an internal score for the particular lender you’re using. It normally lasts 90 days, depending on the lender.

Can I make an offer with an Agreement in Principle?

Yes. And you can make an offer without an Agreement in Principle. In the best interests of the vendor, the estate agent will probably ask you what your position is. They might want to verify that you are plausible as a buyer, and check you’ve got that Agreement in Principle.

Without that, you could put an offer on anything you wanted – but it doesn’t mean you can actually qualify to get a mortgage to buy that property.

Does an Agreement in Principle or AiP mean you’ll get a mortgage?

It means you’ll get a mortgage, subject to some other factors – such as the valuation and a full assessment of your documents. It’s a very good start, but it doesn’t 100% mean that you will end up getting the mortgage.
Will I need a credit check? Does an Agreement in Principle or Decision in Principle affect my credit score?
Getting an Agreement in Principle early on is certainly advantageous, but I’ve seen clients be approved at that stage and then, once we get into the full mortgage application, they’ve been declined.

It happens because things come up that they weren’t aware of, or they didn’t disclose to me or the lender. I always recommend that my clients get a credit check as early on in the process as possible, in case there’s something there that they don’t know about. It means we have time to tidy it up.

Most lenders do what they call a ‘soft search’ at Agreement in Principle stage. You will be able to see that it’s been done, but it’s not going to impact your score. Opening a new bank account or making a full mortgage application will impact your score, because at that point it’s a hard search.

How do I apply for an Agreement in Principle? How long does it take?

We’ve touched on how to apply, and it doesn’t take long. It depends on how quickly your broker can move. Once you send your documents over, I personally would get that turned around the same day or within 24 hours. It can be very quick, depending on the urgency.

How can a mortgage broker help if somebody is looking to get an Agreement in Principle?

A broker will gather a lot of information from you at your initial appointment. Every lender will have different affordability calculations, and not every lender will use 100% of your income.
It might be broken up into basic salary, hourly pay, there might be an overtime bonus, commission, benefit income, foster income, foreign income, rental income or pensions.

Not every lender is going to take all of that, so the amount they will lend to you will fluctuate massively. A broker will use their knowledge, experience and tools to indicate what that range is. We also verify that they will lend to you based on their individual criteria.

People have come to me with an Agreement in Principle from their bank, but when I’ve got more information I’ve established that the lender won’t in fact lend that amount to them. Perhaps they included all their income under basic salary – but it’s not correct. That lender’s not going to take 100% of your overtime or commission, for example, or they might not accept things like child benefit. But other lenders might take 100% of it.

So a mortgage broker is a huge support to you at this stage – but also right the way throughout the process. We can help find a suitable lender for you and check the criteria to avoid later delays. If things don’t go well with that lender, we have plenty more. We can find a mortgage for most people.

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

Approved by The Openwork Partnership on [xx/xx/xxxx].