What is a Mortgage in Principle?

An mortgage in principle is another name you might see for agreement in principle (shortened to AIP). This is where you pass a Lender credit score to qualify for a mortgage. It is also referred to as a decision in principle.

Once you have your agreement in principle and have looked into some first time buyer mortgage advice you can go ahead and make an offer on a property.

Having an agreement in principle certificate can sometimes help a first time buyers negotiate a lower asking price. This is because the seller knows you are serious and have the funds to proceed. 

Will obtaining an agreement in principle affect my credit score?

We find more and more often that customers these days are a lot more aware of the things that can negatively impact their credit score, with one of those being that credit searches.

Of course, every credit applicant will have a credit searches taken out on them. This goes for mortgages, personal loans, phone contracts, car finance, really anything you can think of.

As a trusted and experienced mortgage broker, we personally do not carry out any credit checks on you, though your mortgage advisor will seek your permission for one, as the mortgage lender will be conducting a credit search on you.

Credit searches will either come in one of two forms, with each of those being a soft search or a hard search.

What is a hard credit search?

A hard credit search is a much more in-depth look at your credit file from a mortgage lender. Any company that takes out one of these on you, must seek permission before doing so, as they can (although not always) have an impact on your credit score.

The upside for customers that have had a hard credit search taken out on them, is that the mortgage lender will have the most complete look at your financial circumstances. If you pass their checks, whilst not a guarantee, you are much more likely to see mortgage success.

Hard searches will more than likely be leaving a credit footprint on your file, which is a record that a hard credit search was taken out on you. Being successful in one of these checks can be a big boost to your credit score.

The downside here, is that the footprint will not actually show to any financial institution looking at it whether or not it was successful. This means that having multiple taken out, whether you previously failed or are just applying multiple times, can harm your chances of being accepted

The reason for this, is that having multiple credit searches taken out in a small amount of time can almost come across like you’re applying for lots of credit at once, or have perhaps even failed so are trying again, which not only harm your credit score, but can actually put off a mortgage lender.

This isn’t to say that having a few will be drastically negative, you won’t need to worry a lot about this, it’s just always best to make sure you are cautious with it.

What is a soft credit search?

Quite the opposite to having a hard search taken out on you, soft searches are a lot less in-depth and are most typically encountered with say, a price comparison website or as a means to verify that you are who you claim to be. It seems more mortgage lenders these days are opting to use soft credit searches.

When a soft search is taken out on you, the company initiating the search will not be able to see as much information as they perhaps would have done, had they taken out a hard credit search on you instead. That being said, soft searches are also much less likely to have an impact on your credit score.

Whilst they gain less information this way, if the end result is you obtaining a mortgage agreement in principle from the mortgage lender, it doesn’t necessarily matter which credit search is taken out on you, if you do end up with that AIP.

Additionally, whereas a hard search can be seen by both yourself and other financial institutions, soft searches are hidden, with only you being able to see that this took place. That means you can be unsuccessful in one instance and not worry too much about how it looks to others.

Is an agreement in principle a guarantee that I will get the mortgage?

An agreement in principle is not a guarantee that your mortgage application will be accepted. The Lender will need to see all your documents and only then will an underwriter make the final decision.

Agreements in principle are full of small print and often clients ring us having being declined at full application stage. You will need to provide ID to prove who you are, payslips to prove how much you earn and bank statements to prove you conduct your finances well before a Lender will offer your case. 

The required documentation is a little bit different for applicants who are looking to obtain a self employed mortgage.

Can I make an offer without an agreement in principle?

You can make an offer without an agreement in principle but we wouldn’t recommend it. An estate agent worth their salt will want to make sure that someone applying for a mortgage, especially someone applying for a first time buyer mortgage, has the means to proceed. 

How long does it take to get an agreement in principle?

In most cases, you should be able to obtain an agreement in principle within 24 hours of speaking with a mortgage advisor. This is something we aim to achieve for every customer that gets in touch with us.

How long does an agreement in principle last for?

An agreement in principle can typically expire after 30-90 days. Don’t worry though, just because you have got an agreement in principle it doesn’t mean you have to buy the first house you see!

We think it’s a great idea to get an agreement in principle as early as possible to avoid the disappointment of finding a house and then being declined for a mortgage.

If your agreement in principle expires it’s easy enough to get it refreshed when you are ready to make an offer. 

Written by
Malcolm Davidson
Managing Director of UK Moneyman Ltd.
MAQ & CeRER Qualified

About the Author

Malcolm Davidson

Managing Director of UK Moneyman LTD

Malcolm is one of the UK’s most well-known and respected Mortgage Advisors. He is passionate about providing a 5* customer experience and he has also trained and mentored dozens of fellow Advisors in a career that is now in its third decade.

In addition to his day to day duties as Managing Director, Malcolm still gives out mortgage advice and feels lucky that his job is also very much his hobby.

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