Agreement In Principle: What can go wrong?

What is an Agreement in Principle?

An Agreement in Principle (AIP), also known as a Decision in Principle, is a document you get from the lender you want to get a mortgage from, confirming what you could be offered for a mortgage. The amount shown on your Agreement in Principle is not a guarantee of what you will be offered, however, as you will still need to go through the full mortgage application which includes eligibility and affordability checks.

A Mortgage in Principle is not the same thing as an Agreement in Principle, as it can be given by a bank, building society or a mortgage broker and only is an indication of what you could borrow.

What can go wrong with an Agreement In Principle?

1. You get rejected from an Agreement In Principle

When you apply for an Agreement In Principle, the lender will check your eligibility against their criteria. They’ll want to know how much you earn, how much you’ve saved for a deposit and how much you’re hoping to spend on a home.

There is a chance when applying for an Agreement In Principle that you will be rejected. This could be due to a low income, a low house deposit or a complicated debt history. If you lose your job, start a new role, or become self-employed in the months leading up to your mortgage application, this could also affect your ability to get the loan you need — even if you already have a Mortgage In Principle. 

Your Mortgage In Principle will have been given to you based on the information you gave the bank, building society or mortgage broker at the time. If your circumstances have changed since then, lenders might offer you a different mortgage amount on your Agreement In Principle or reject you completely. 

If it happens to you, don’t be disheartened. At Tembo, we specialise in helping buyers increase their buying budget through a range of family-assisted mortgages and specialist buying schemes. Advising on over 20,000 mortgage products, if one lender rejects your application or does not offer you the mortgage size you need, we can work with you to try and find another. 

2. You might need a larger mortgage

Let’s imagine your Agreement In Principle says you’d potentially be eligible for a loan of £150,000. Add this to a £30,000 deposit, and you have a total budget of £180,000. But what happens if you start your property search and all the apartments you love are £200,000 upwards? 

Before you settle for a cheaper home you don’t really like in an area you don’t want to live in,  it’s worth exploring a few ways to boost your affordability.

For example, if you have financially comfortable family members who want to help, you may be able to increase your borrowing potential with an Income Boost or Deposit Boost. 

If you don’t have help from family, Dynamic Ownership could be an option. This involves buying a house with friends or family as co-owners. You each will have an individual equity stake in the property and your individual contributions will be tracked over time. So everyone can chip in as much as they can afford, with the equity being split to reflect what each individual has put in when the property is sold. Plus, your co-owners do not have to live in the property with you if they don’t want to!

3. You run out of time

An Agreement In Principle is usually valid for between 60 to 90 days. So it’s a good idea to hold off getting an Agreement In Principle until you are ready to buy. Don’t worry if it expires before you get a chance to buy your first home, though. You can get a new one quickly and easily with Tembo.

If you want to wait to get an Agreement In Principle, but would like to get an idea of what you could afford, type your details into our mortgage calculator to get a rough idea of how much you could borrow, or create a Tembo plan to get a free, downloadable Mortgage In Principle instead. 

Can you fail an Agreement In Principle?

When you request an Agreement In Principle, there’s no guarantee that you’ll get one. We wouldn’t describe this as ‘failing’ an Agreement In Principle, though. That sounds intimidating, but applying for an Agreement In Principle is not a test! And you can always re-apply for an Agreement In Principle with another lender, or later down the line when your circumstances change, for instance when you have a pay rise.

Getting an Agreement In Principle through a mortgage broker like Tembo can save you from having to make multiple applications. Our smart tech will check your eligibility against hundreds of lenders and mortgage deals to find one that’s right for you. At the end, we’ll give you a free Mortgage In Principle. Simply register your details to get started. 

Can a rejected Agreement In Principle affect your credit score?

This all depends on whether the lender carried out a ‘hard’ credit search or a ‘soft’ one. Hard credit searches are visible to other lenders and can affect your credit score in the long run. While, soft searches are only visible to you and they won’t impact your credit score.

Thankfully, it’s rare for an Agreement In Principle to require a hard credit check. Most lenders and mortgage brokers will give you an Agreement In Principle without delving too deeply into your credit history. 

Before you request an Agreement In Principle, find out what kind of search (if any) will be carried out. Too many hard credit searches in a short space of time can impact your ability to get credit in future, because lenders see it as a sign you’re desperately searching for credit. 

Avoid stress and hassle by getting a free Mortgage In Principle from Tembo - no credit check needed! 

At what stage can a mortgage be declined?

There are a number of stages when a mortgage can be declined. These include:

1. Before you apply for an MIP. Whether you visit your bank’s local branch or speak to an advisor online, they may tell you that you won’t qualify for a mortgage before you even request a Mortgage In Principle.
2. When you apply for an Agreement In Principle. After sharing your details with the lender, they may say they’re unable to offer you an Agreement In Principle.
3. After your Agreement In Principle is approved. Remember, an Agreement In Principle isn’t legally binding and the lender reserves the right to reassess your affordability at any time.
4. When an underwriter assesses your application. They may spot something that the lender’s computers and systems had missed before.
5. Once a property survey has been carried out. If the survey highlights issues with the property, the lender may be reluctant to offer you a mortgage. 
6. When you’re ready to purchase. This is a worst-case scenario but thankfully very rare.

Learn more: What can I do if my mortgage application has been declined?

How reliable is an Agreement In Principle?

An Agreement In Principle gives you a fairly reliable indication of what you may be able to borrow. But there are no guarantees that you’ll get the loan outlined in the original document. This is especially true if your circumstances change or you missed important details when applying for your Agreement In Principle. 

Is an Agreement In Principle a good sign?

If you’ve been given an Agreement In Principle, this is a good sign — even if it’s not a guarantee and nothing’s set in stone just yet. It’s still something to celebrate!

Even if things don’t work out and your Agreement In Principle application falls through, you’ll have plenty of other opportunities to buy, especially if you have a mortgage broker at your side. 

How long is an Agreement in Principle valid for?

How long your Agreement in Principle is valid depends on the mortgage lender you get it from, but typically they last between 60-90 days. A Mortgage in Principle, which you can get from a bank, building society or mortgage broker, lasts much less than this, typically 30-60 days. Remember, even if you have a Mortgage in Principle, you may have to still get an Agreement in Principle from the lender you choose to go with. A Mortgage in Principle is only an indication of how much you could afford to borrow, not confirmation of what you will be offered.