What is an Agreement in Principle and why does it matter when buying a home?
Key Takeaways
- An Agreement in Principle gives buyers an indication of how much they may be able to borrow, helping them understand their budget before beginning their property search.
- Securing an Agreement in Principle early allows buyers to focus on suitable properties within their price range and avoid pursuing homes that may be unaffordable.
- While it is not a guaranteed mortgage offer, an Agreement in Principle can reassure sellers that a buyer is financially prepared and ready to proceed.
- The process can highlight potential affordability or credit issues early, giving buyers time to review their options and seek advice before making an offer.
- Speaking to a mortgage adviser can help buyers understand their borrowing options, secure an Agreement in Principle and navigate the next steps towards buying a home.
Lisa Bell, an Independent Mortgage Adviser at ESPC Mortgages, explains what an Agreement in Principle is and why it is important if you are planning to buy a property in Scotland...
What is an Agreement in Principle?
An Agreement in Principle (sometimes known as a Decision in Principle) is an indication from a mortgage lender of how much they may be willing to lend you to purchase a property, based on an initial review of your current finances and circumstances.
An Agreement in Principle provides a realistic estimate of how much you could expect to borrow from a mortgage lender, helping you understand your likely property buying budget before you begin your property search. It's for this reason that it's very sensible to secure an Agreement in Principle before you start looking for a home. Doing so allows you to focus on homes for sale that fall within your budget, avoiding wasted time viewing properties that may ultimately be too expensive to pursue.
Remember, your mortgage lender will only lend against the property's value as determined in its Home Report. Any amount you offer above that valuation, along with your house deposit, will need to be covered by your own savings.
Why is an Agreement in Principle important?
Although an Agreement in Principle is not a guaranteed mortgage offer, it demonstrates that a lender has already carried out an initial assessment and may be willing to lend to you. This can give others involved in the sale greater confidence that you are in a position to proceed, making you a more attractive prospective buyer to sellers, particularly if they have several interested parties.
Having an Agreement in Principle also shows that you're serious about buying a property and financially prepared to move forward.
Another benefit is that it may help the home buying process run more smoothly once you find the right property. Because some of the initial checks have already been completed, the lender will already have a basic understanding of your circumstances. While this does not replace a full mortgage application, it can make the next stage feel more organised and may help reduce delays.
The final mortgage offer will only be approved once you have had an offer accepted on a property and the lender has completed its own checks to confirm the property's valuation is satisfactory.
Can an Agreement in Principle help identify problems early?
An Agreement in Principle can also highlight any potential issues early in the home buying journey. If there are concerns around affordability, credit history or the amount you hope to borrow, it is far better to understand these before becoming attached to a particular property.
This gives you time to review your options, seek independent mortgage advice and make informed decisions before progressing further.
Getting mortgage advice before you buy
If you're ready to begin buying a home, speaking to a mortgage adviser can help you understand how an Agreement in Principle works, what information you'll need to provide and what the next steps in the property buying process look like.
A mortgage adviser can search the whole mortgage market to find the product best suited to your individual circumstances and guide you through securing an Agreement in Principle, helping you take your first steps onto the property ladder with confidence.
Whether you're looking for first-time buyer mortgage advice, are interested in buy-to-let mortgages or want to remortgage, ESPC Mortgages offers expert, independent mortgage advice in Edinburgh. Contact the team on 0131 253 2920 or fsenquiries@espc.com to get started.
The initial consultation with an ESPC Mortgages adviser is free and without obligation. Thereafter, ESPC Mortgages charges for mortgage advice are usually £395 (£345 for first-time buyers). The Financial Conduct Authority does not regulate Buy to Let Mortgages. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR OTHER LOANS SECURED AGAINST IT.
The information contained within this website is subject to the UK regulatory regime and therefore restricted to consumers based in the UK.
The Financial Ombudsman Service is available to sort out individual complaints that clients and financial services businesses aren’t able to resolve themselves. To contact the Financial Ombudsman Service, please visit www.financial-ombudsman.org.uk.
ESPC (UK) Ltd is an Appointed Representative of Lyncombe Consultants Ltd which is authorised and regulated by the Financial Conduct Authority.