Getting an agreement in principle (AiP) sounds daunting: it’s the start of your house-buying journey and often signifies you’re about to spend an awful lot of money and sign up to an almost life-long credit commitment. However, AiPs aren’t complicated and they’re fairly straightforward to apply for. They also make it easier to arrange house viewings and, as a first time buyer, put you ahead of the game when it comes to making an offer on your first home.
An agreement in principle is essentially like a quote from a mortgage lender. It represents how much they are likely to lend to you, and therefore gives you an idea of your budget for a potential home. While mortgage calculators can help in this area too, they are very generic and based purely on calculations set by the bank, rather than being based on you as an individual and your creditworthiness. In reality, you may be able to borrow more, or you may not be able to borrow as much. When you're just starting out on your house buying journey, mortgage calculators will suffice, but as you get closer to booking viewings, an agreement in principle is much more helpful.
An agreement in principle basically shows the estate agent how serious you are about buying a house. It means when you come to make bookings, the estate agents may prioritise you — especially if you are a first time buyer, as the buying process is generally much quicker, because there’s no chain attached. It also means that if you make an offer and your offer is accepted, your mortgage application is likely to be approved, again speeding up the overall process. Being a first time buyer with an AiP in place could see your offer accepted by the sellers over higher offers, simply because of the speed of sale.
On more local terms, however, having an agreement in principle can guide you when it comes to finding a property. Looking at houses on online market websites can become overwhelming: in some cases, there is too much choice, and in others, almost none. Having a set budget and an accurate view of how much you can spend means you can narrow down your options and simplify the process.
There is a lot of preparation work involved in buying a house, but at the early stages, most of this prep work revolves around you getting your finances in order. You’ll already have your deposit saved, and probably an idea of what you can borrow from using various mortgage calculators, but it will help you save time and provide clear visibility for you and the bank, if your deposit and house-dedicated funds are clearly allocated. This is probably easiest by having them in a separate account to your main bank account, or at least in an associated savings account. Make sure you’ve counted every penny correctly and include any owed bonuses from government saver schemes, like the lifetime ISA or Help to Buy.
The actual process of getting an agreement in principle is fairly straightforward.
First, it’s a good idea to compare mortgage lenders as although their criteria will be similar, some banks will be able to lend you more — for example, if they take bonuses into consideration. While you may not need the maximum amount to buy the house of your dreams, it’s always better to have an agreement in principle with as big a mortgage as possible, just in case you need to put in a higher offer to secure the property.
Once you've chosen a bank, you’ll need to submit an application, and this can usually be done online. It’s handy to have all of the information ready that you may need. This usually includes some form of identity and a few recent payslips. The application may not actually require this documentation as evidence, but it means your application will be accurate, and you’ll encounter fewer issues down the line when it comes to applying for a mortgage.
Enter the information that's requested as accurately as possible. If you make a mistake, go back, and start again. Any incorrect information could result in your agreement in principle being invalid and your mortgage application declined, losing you the property you’ve made an offer on, and causing you plenty of stress in the process. If you’re not sure what the form is asking, there are usually help icons around the page for assistance.
Wait. It usually takes a few minutes for the bank to make a decision on your application, though 24 hours is often the suggested timeframe. Try not to panic as the mouse whirrs. If you are approved, you’ll receive a statement-type document which shows exactly how much the bank is willing to lend to you. You’ll likely also get a copy via email – keep both safe, so you have them when you need them in the future.
Agreements in principle expire after around 3 months, which is usually how long it takes from finding an ideal property to applying for a mortgage, though the timeframes can change significantly. If your AiP is going to expire before you're ready to move onto the next stage of your house buying journey, contact the bank. Typically, they’ll offer you a new agreement in principle for the same amount — although if your deposit has increased in this time, you may be able to borrow even more.
Once you’ve got an AiP, the bank will likely follow up with you over the next few weeks to see how you’re getting on along your journey. This provides you with the opportunity to ask questions and get as much information about the process as possible. Make use of the service they provide – they offer support so that you feel confident and comfortable using them as your mortgage provider. As many people stay with the same mortgage lender their entire lives, it’s in the bank’s interest to ensure you are supported so that they benefit from your future customer loyalty.
Applying for an agreement in principle is the first major step to becoming a home-owner. You may find you can borrow more than you thought you’d be able to, or your potential mortgage could be much less. You may even find your application declined which can be very disappointing. Consider the factors that may have influenced the bank’s decision: do you have too many financial commitments at the moment? What does your credit file say about your ability to make regular repayments? Is your deposit a reasonable size for the amount you’re looking to borrow?
You may need to wait a few more months or years before you can make your first move to buying a house – but that’s okay. It takes a long time to become a property owner because affordable housing is in high demand.
If you’re desperate to buy or you just want to move out of your parents’ home, consider perhaps buying a flat rather than a house to start with. There are pros and cons to this – as first time buyers, you won’t pay stamp duty on a property up to £300,000, so obviously there is a benefit to waiting a little longer and buying a £300,000 property, instead of buying a £150,000 flat and paying the stamp duty when you move. However, every monthly mortgage repayment increases the equity you hold which increases your deposit when you do come to move and also means you can re-mortgage and use some of that equity towards renovations or repairs, for example.
Use all the support available from banks and even family and friends who have recently bought their first home or recently moved house. Being prepared is the best way to reduce the stress and anxiety of property buying and means you can make better informed decisions, reducing the risk of any major setbacks along the way, and it will likely speed up the process too.
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A guide to managing your money: First time buyer mortgages
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Check out our other great content in our Info Hub, with articles about the different types of credit products, money management tips and help with saving money!