Agreements in principle explained

Thinking about buying a property? We explain all you need to know about getting an agreement in principle.

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What is an agreement in principle?

An agreement in principle is a written estimate from a mortgage lender, giving you an indication of how much money you can borrow. You can show this to estate agents and vendors to prove you’re a serious buyer and can, in theory, get a mortgage.

If you’re getting a mortgage jointly with someone else, the agreement in principle will state how much it will lend on the joint application.

An ‘agreement in principle’ may also be called:

  • Decision in principle
  • Mortgage in principle
  • Mortgage promise
  • Approval in principal

Why it’s a good idea to get an agreement in principle

An agreement in principle will give you an idea about the size of mortgage you’re likely to be eligible for. It will also offer some reassurance that you’ll be able to buy a property, especially if you have any concerns about your credit record. All this information will help you search for a property in your price range.

An agreement in principle will also give you credibility with estate agents and vendors. It shows you can potentially afford the properties you’re viewing and that you’re serious about buying.

What information will you need?

Typically, you can apply for an agreement in principle online, by phone or by calling into a high street lender’s branch.

An agreement in principle should be free, and some lenders can issue them in just a few minutes. They are usually valid for 30 or 90 days and can sometimes be renewed.

When you apply for an agreement in principle the lender or adviser will ask for:

  • Personal details such as your name, date of birth and address
  • Address details for the past three years
  • Information about your income
  • Information about your expenditure and existing credit agreements

The lender will use the information you supply to arrive at a figure that, ‘in principle’, it would be willing to lend to you. It will give you a letter or certificate stating the maximum amount it could potentially lend.

You won’t need supporting documents, such as payslips or bank statements, for an agreement in principle but you will need these when you make a full mortgage application.

How an agreement in principle can affect your credit score

When you apply for an agreement in principle, the lender will ask for your permission to run a credit check. It’s important to know if this will be a “hard” or “soft” credit check – don’t be afraid to ask.

A hard credit check will leave a footprint on your credit record that other lenders will see. This could affect your credit rating in the future. If the lender does a soft check (also known as a “quotation search”), other lenders won’t see this on your credit file.

What an agreement in principle isn’t

  • A mortgage offer
  • A guarantee that you’ll be able to borrow a certain amount of money from a certain lender
  • A commitment that you will take out a mortgage with a particular lender
  • Linked to any particular property you might buy

Why might an agreement in principle be declined?

There are a number of reasons why you might be declined for an agreement in principle. These include:

  • You have a poor credit history such as missed payments or a County Court Judgment
  • You’re not on the electoral register
  • The lender has concerns about your debts
  • You don’t fit that particular lender’s demographic

Being declined for an agreement in principle doesn’t mean you won’t get a mortgage from another lender. Speak to an independent mortgage broker who can advise on which lenders are best to approach.

How is an agreement in principle different from a mortgage offer?

A mortgage offer is official confirmation from a lender that it will provide you with a mortgage for a particular property. 

You will only be given a mortgage offer once you have gone through the full mortgage application process, providing the lender with all the information it requires to carry out its underwriting checks, and the lender has carried out a valuation of the property.

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