Mortgage Agreement in Principle

It’s common to have questions such as, “What is a mortgage Agreement in Principle?” and “how does it work?”.

A mortgage Agreement in Principle is a free written agreement that outlines how much money you could borrow from a mortgage provider based on the personal information you’ve provided them with regarding your income, credit history, expenditure and assumed details about the property.

Whilst a mortgage Agreement in Principle highlights your eligibility for a loan, it doesn’t guarantee that you’ll be approved for a mortgage as you’ll still need to go through the application underwriting process and the property will be subject to a mortgage valuation. However, with an estimation of the size of a mortgage you might be entitled to based on your stated circumstances, your mortgage Agreement in Principle provides a clearer understanding of what you could spend on the purchase of a property and what you may need to save in a house mortgage deposit (if you haven’t already). This estimation is also important to many estate agents as they may require evidence of your Agreement in Principle before allowing you to make an offer on a property or even book a viewing.

In the United Kingdom, a mortgage Agreement in Principle is typically secured via a bank or building society such as:

• NatWest
• Halifax
• Barclays
• Lloyds
• HSBC
• Nationwide
• Santander
• Accord
• TSB

Mortgage brokers like John Charcol can also help you secure your mortgage Agreement in Principle from a lender. We know which lenders to approach based on your circumstances and where you’re likely to get the best deal. We’ve helped all kinds of borrowers, including first-time buyers, those moving home, previous homeowners, people looking to remortgage and more.

A mortgage Agreement in Principle usually lasts for up to 90 days. However, this could differ depending on the lender, bank, building society, or mortgage broker you use. In some instances, a mortgage Agreement in Principle may only last for 30 days.

If, after 30 to 90 days, you’ve been unable to find a property you wish to purchase or haven’t been able to secure a mortgage, you’ll need to reapply for a new mortgage Agreement in Principle. It’s a good idea to reassess your borrowing options and get a new estimate after 3 months anyway as your situation and needs may be different and/or there may be market changes to consider.

This is one of the reasons that Agreements in Principle are so useful; you can get a recent estimate for free despite evolving circumstances, allowing you to manage your expectations and ensure a smooth process.

Are you a first-time buyer? Homeowner looking to remortgage? Buying to let? Whatever the reason you need a mortgage, an Agreement in Principle can go a long way in supporting your mortgage application as it sets your expectations and makes those next steps towards securing a property easier.

To obtain a mortgage Agreement in Principle, you’ll need to apply for one with a bank, building society or lender. You can do this directly or through a mortgage broker like John Charcol. If you apply through a mortgage broker, we’ll talk about your requirements and take down your information, then go about securing your Agreement in Principle for you from the lender that has the best deal for your situation.

Before applying for a mortgage Agreement in Principle, it’s beneficial to get an initial estimate of what you can afford to borrow, and your potentialmonthly repayments with our calculators so you have an idea of what to expect and aim for.

Obtaining a mortgage Agreement in Principle is quite straightforward. You can apply through a broker or directly with a lender online or via a telephone call. 

During this stage of the mortgage process, you’ll need to share certain information with your broker or the lender. We go through some of this information below.

Information About You and the Property

You’ll need to state your name, current address, date of birth and residential history for the past 3 years upon applying for a mortgage Agreement in Principle.

Lenders, such as the bank or building society you apply with, will additionally ask you for information in these areas.

• Your income - you’ll need to share your exact monthly income, as well as your job title and company when applying for a mortgage Agreement in Principle
• Monthly outgoings - you’ll also need to supply information about monthly outgoings. This information will be used to estimate how much you spend each month and what you’ll be able to afford in mortgage repayments. If, for example, you gamble or spend a considerable sum of money each month, this could affect your application
• Any loans and debts you may have - to ascertain whether you’re eligible for a mortgage, you’ll need to outline any current loans, debts, or late payments in your credit history. It’s essential to be honest here, as this information will be provided by credit reference agencies such as Equifax and Experian when your mortgage Agreement in Principle application and mortgage loan request are processed
• The potential property – although you may have not found a property yet, some lenders may require that you enter details of the kind of property you’re after, such as – location, property type, price, etc.

If you’re applying for a joint mortgage, you’ll be asked to provide the above information for both borrowers.

Credit Scores and Ratings

A mortgage Agreement in Principle involves a credit check. The type of credit check conducted will depend on the bank, building society, or lender.

In most instances, a soft credit check is sufficient for a mortgage Agreement in Principle. Soft checks enable banks and building societies to get all the information they need about your credit history without leaving a footprint on your profile. Other lenders may conduct hard credit checks at the Agreement in Principle stage.

Hard credit checks provide the same information as soft checks, the main difference is that a hard credit check will leave a footprint on your credit profile. Too many hard credit checks in a short period of time can damage your credit score, so if this is something you’re concerned about, you can speak to your broker about applying for an Agreement in Principle with a lender that does soft credit checks at this stage.

Yes, in some instances, banks and building societies can decline your request for a mortgage Agreement in Principle.

If a bank denies your application for a mortgage Agreement in Principle, your first thought may be to apply for one elsewhere. However, we advise learning why you’ve been denied one first by speaking to your mortgage broker or lender.

Though this may seem disheartening – especially if you're keen to purchase a property within the next 3 months – understanding the reasons behind the rejection can boost your chances of being accepted by another bank or lender.

Ascertaining why a mortgage Agreement in Principle can be challenging, especially as banks, for example, aren’t obliged to offer their reasoning.

Some reasons that a mortgage Agreement in Principle may be denied include:

• Lending criteria
• Information found when completing credit checks
• Unavailable information – such as your employment history
• Changes to your personal circumstances

If you find that your mortgage Agreement in Principle application is rejected by one bank or lender, this doesn’t mean that your application will be turned down elsewhere. Working with a mortgage broker like John Charcol is the easiest way to find a provider that will be willing to grant an Agreement in Principle based on your circumstances and needs.

Changes to your personal circumstances are inevitable. You may start a new job with a higher income, face redundancy, reduce or increase your spending habits, and realise that the mortgage you require is smaller or larger than initially anticipated.

If there are any changes to your personal or financial circumstances during the 30 - 90 day term of your Agreement in Principle, you’ll need to update your broker or lender as soon as possible.

Any changes to your circumstances may require you to submit a request for a new Agreement in Principle.

Once your request for a mortgage Agreement in Principle is accepted, you’ll be in a great position to put an offer on a property and start your full mortgage application.

If you’ve not already started your property search, you’ll be able to do so knowing the size of the mortgage loan you may be able to secure. Not only will this help you make more informed decisions in your search, but it’ll ensure you can easily share this information when required.

Likewise, if you’ve found a property you wish to purchase, you’ll be able to work with your mortgage broker to begin your full mortgage application.

It’s easy to assume that if your mortgage Agreement in Principle is accepted and shows that you're an eligible borrower, you’ll be able to secure a mortgage quickly. However, as we’ve shared in this guide, a mortgage Agreement in Principle doesn’t guarantee that a lender will accept you for a mortgage loan.

When you submit your full mortgage application, the lender will perform a hard credit check, carry out underwriting on your application and arrange a valuation of the property. Assuming you meet all the lender’s criteria during this part of the process, you should expect to receive your mortgage offer. If you still meet the lender’s criteria but upon these further checks some details are slightly different from those you provided in the Agreement in Principle – e.g. the property you want to buy is actually cheaper – the lender will likely amend the loan amount to reflect your reduced borrowing need.

Learning that your mortgage declined after "Agreement in Principle" can be discouraging.

Though a setback, remember that each mortgage broker or lender has their own criteria that you’ll need to meet.

Having a mortgage declined after Agreement in Principle could be a result of:

• Changes to your circumstances or new findings uncovered in your credit check – e.g. your income has changed or you’ve taken out a new line of credit
• An increase in your outgoings or findings that they were incorrectly stated at the Agreement in Principle stage
• An issue with the property found during the valuation
• The evidence you’ve provided not aligning with the information you gave the lender at the Agreement in Principle stage
• An issue with you not meeting the lender’s criteria – e.g. perhaps the mortgage term you requested would put you over the lender’s maximum age limit
• Or something else

Remember: being rejected by one lender doesn’t necessarily mean you won’t obtain a mortgage from another.

If your mortgage is declined, there are several things you can do. Firstly, with the support of your mortgage broker, you can spend some time understanding why the lender, such as HSBC or Barclays, has denied your application. Seeking this information will offer insight into any changes you could make ahead of your next application.

After identifying the cause of your mortgage application rejection, you can begin to make some changes. These changes may include the following:

• Decreasing your monthly spending - if your monthly outgoings are high, lenders may deem you unsuitable for a mortgage due to being unsure if you’ll be able to keep up with your mortgage repayments. Decreasing your monthly spending can assure lenders that you’ll keep up to date with repayments
• Saving a larger deposit - though most mortgage lenders require you to have at least a 5% deposit, a larger deposit can enhance your chances of being accepted for a mortgage
• Requesting a smaller loan - if your mortgage request is declined, consider whether you could move forward with a smaller loan
• Improve your credit score - improving your credit score is another way to better your chances when it comes to securing a mortgage. Ensuring that you pay your bills on time and repay any loans and overdrafts you have can support this

Upon making some changes and/or consulting your mortgage broker, you may be able to move forward with applying for a new Agreement in Principle and then mortgage application with a different lender – one with criteria that better aligns with your situation.

At John Charcol, we have more than 45 years of experience in sourcing mortgages. As experts in our field, we support clients in finding suitable mortgages regardless of whether they’re first-time buyers, remortgaging, or buying to let.

We can guide you through securing your mortgage Agreement in Principle meaning you don’t have to handle this hassle alone. We’ll also manage your entire mortgage application for you, taking you through it step by step and ensuring a smooth transition to homeownership.

Contact us today by calling 0330 433 2927 to speak with one of our highly experienced mortgage brokers.