Agreement In Principle Do I Really NEED One?

Podcast: Let’s Talk Money and Mortgages

Host: Gemma

Guest: Ifthi – Trained Accountant, Mortgage Advisor, and Founding Director at WIS

Topic: Understanding Agreement in Principle (AIP) and its importance before buying a property

Q1: What is an Agreement in Principle (AIP)?

Answer:

An Agreement in Principle is an indication from a bank of how much you could potentially borrow based on the information you provide.

Example: If a couple earns £50,000 combined and provides details of financial commitments, the bank will give an estimate of the borrowing amount.

At this stage, the bank does not check documents; the estimate is based on the numbers you provide.

Accuracy is important – providing incorrect information can lead to a different borrowing estimate later when you submit full documentation.

Q2: Is a Decision in Principle the same as an Agreement in Principle?

Answer:

Yes. Terms such as Decision in Principle, Agreement in Principle, and in-principle agreement all refer to the same thing.

Essentially, it indicates how much a bank is willing to lend based on the information you provide.

Q3: What information is needed for an AIP?

Answer:

Technically, you don’t need to provide documents for an AIP. You only need to provide accurate information.

Accuracy is key: e.g., if your actual income is £49,500 but you state £50,000, the AIP may be inaccurate.

Banks may adjust for deductions, like pensions or share purchases, depending on their policy.

It’s recommended to also provide your credit file, as banks check for missed payments or past credit issues.

Other useful documents: passport (to verify identity), payslips, and details of financial commitments.

Q4: Do you need an AIP before purchasing a property?

Answer:

No, it’s not mandatory.

However, there are good reasons to get one:

• First-time buyers can understand how much they can borrow.
• Banks can identify any potential credit or affordability issues early.
• Estate agents often request an AIP, especially in competitive markets, to determine which buyer is more likely to get a mortgage.
• It provides advisors time to analyze your financial situation and ensure the mortgage is responsible for you.

Q5: What should you do before running an AIP?

Answer:

Check your credit file to identify missed payments or errors.

Resolve any unexpected issues, e.g., a county court judgment due to an old parking ticket.

Gather documents like payslips, and note deductions such as pensions or share purchases.

Ensure your deposit and bank statements are ready, as these may be reviewed when moving beyond AIP to full mortgage application.

Q6: Will running an AIP affect my credit score?

Answer:

It can affect your credit score, depending on the lender:

• Some lenders perform a soft credit search (no impact).
• Some perform a hard credit search (may affect your score slightly).

If your credit score is excellent, a hard search is unlikely to cause issues.

Tip: Use a lender that performs a soft search if you just need an AIP to show estate agents.

In certain cases (e.g., earning in foreign currency), a hard search may be unavoidable.

Key Takeaways

An AIP is a preliminary estimate of how much you can borrow.

It is not mandatory, but recommended for first-time buyers and competitive property markets.

Accuracy in income and financial commitments is crucial.

Checking your credit file beforehand can prevent surprises.

Estate agents often require an AIP to consider your offer seriously.

Running an AIP may or may not impact your credit score, depending on the lender.

Contact WIS:

Phone: 0203 01968

Website:https://wismortgages.co.uk/

Reminder: Your mortgage is secured against your home or property. Failure to keep up with repayments may result in repossession.