In this brief guide, we are going to answer the question ”does an agreement in principle guarantee a mortgage”

What is an agreement in principle?

An agreement in principle or mortgage in principle is a document or email which states a mortgage lenders intention to lend to you. It will usually contain how much the mortgage lender thinks they may be willing to lend to you. 

You should not use an agreement in principle as an indication or guarantee of if a mortgage lender will lend to you as it is a very preliminary check with very little verification done by the mortgage lender.

An agreement in principle does allow you to shop with a bit more confidence and allows home sellers and estate agents to take you more seriously as they feel you have some indication that a mortgage lender will lend to you and you are a serious buyer.

Does an agreement in principle guarantee a mortgage?

No, an agreement in principle does not guarantee a mortgage. A mortgage lender could give you a mortgage in principle but not give you a mortgage offer. This is a very common occurrence and hence you should not look at a mortgage in principle as a guarantee of a mortgage.

Why an agreement in principle does not guarantee a mortgage?

There are various reasons why an agreement in principle does not guarantee a mortgage but the most obvious one is that the mortgage in principle is a simple preliminary check carried out by the mortgage lender which does little verification on the information you provided.

This means if you have provided a fake salary or an inflated salary figure the mortgage ender does not validate this information and any amount which they have stated they will lend to you is not a guarantee but simply feedback based on the information you have provided.

The agreement in principle does not look to ascertain your mortgage affordability as would be done when a full mortgage application is made but rather it acts as a quick way to know if you are the kind of borrower a mortgage lender may be willing to lend to and gives you an indication of the maximum the mortgage lender may lend to you.

A mortgage in principle is therefore not a guarantee of a mortgage but rather an indication of a mortgage lenders attitude to lending to you.

Once you make a full mortgage application the mortgage lender will then carry out a more detailed check to verify all the information you have provided and determine your mortgage affordability.  

This will then guide the mortgage lenders on if to provide you with a mortgage offer or not.

You should note that even with a mortgage offer in place, a mortgage lender could still withdraw the mortgage offer or reject you further down the line before completion.

Below are some of the most common reasons why an agreement in principle is not a guarantee of a mortgage:

  • You could still fail future mortgage affordability checks when applying for a mortgage offer
  • If your credit score has fallen since you got the agreement in principle then you should not see it as a guarantee
  • If you are a foreign resident then the agreement in principle should not be seen as a guarantee of a mortgage.
  • The mortgage lenders lending criteria may change before you apply for a mortgage offer. This could mean you now need a bigger mortgage deposit etc
  • Mortgage rates could rise before you make a full mortgage application for a mortgage offer and hence you may not be able to afford the mortgage anymore
  • If you have had a serious change in your financial circumstances then the agreement in principle you obtained should not be seen as a guarantee
  • If you didn’t put in correct information on our agreement in principle application then the agreement in principle should not be looked as a guarantee of a mortgage
  • If the mortgage lender has a history of declining mortgage application after giving agreement in principles then the agreement in principle you obtained could not be seen as a guarantee. You should ask your mortgage broker if the mortgage lender is known to do this.
  • If you are about to buy a non-standard construction property then it is very likely that your agreement in principle may not be a guarantee. This is because most mortgage lenders have specific criteria for lending on non-standard construction properties.
  • If your credit score has fallen since you got your agreement in principle then you should not see the agreement in principle as a guarantee.
  • If you are in the middle of a job change then your agreement in principle may not be a guarantee
  • If you are about to have a baby then your agreement in principle may not be reliable
  • If you are a self-employed borrower then the agreement  in principle should not be seen as a guarantee

Can a mortgage be declined after agreement in principle?

Yes, a mortgage can be declined after an agreement in principle has been given for a number of reasons including those mentioned above.

A mortgage in principle is not a guarantee of a mortgage.

Does an agreement in principle affect credit score?

Getting an agreement in principle does not usually affect your credit score as an agreement in principle is usually obtained by the mortgage lender carrying out a soft credit search which does not affect your credit score as it is not publicly visible on your credit file.

In some cases, a mortgage lender may use a hard credit check when deciding on whether to give you an agreement in principle.  

You should inquire with the mortgage lender on if they will be using a soft credit check or a hard credit check before giving you an agreement in principle.

How long does a mortgage in principle last?

A mortgage in principle will usually last for 90 days.

Use a mortgage broker for your mortgage

You may want to consider using an independent mortgage broker to get a mortgage.

Mortgage brokers are important as they can access mortgage products from across the whole of the market in some cases.

This could be over 11,000 mortgage products. This may have some advantages rather than going directly to a mortgage lender.

A mortgage broker will look to understand your financial circumstances and then provide recommendations on which mortgage products may be suitable for you based on your mortgage affordability.

After giving you these mortgage recommendations, most mortgage brokers will seek your consent to apply for a mortgage in principle. 

This will allow you to shop for your home easier as more estate agents and sellers may take you seriously or it will give you confidence that your mortgage is indeed a possibility before you make a full mortgage application. 

Once you have found a home you want to buy and are satisfied with the mortgage offer for your mortgage then the mortgage broker will then look to get you a mortgage offer.

This will come with a key facts illustration document which details out the features of your mortgage including how much you will pay per month.

It will also contain information on if there are any limits such as early repayment fees, or annual overpayment limits.

If you are happy with everything you can then go on to secure your mortgage with the help of a conveyancer.

Your conveyancer will manage the legal searches on the property to ensure there aren’t any issues with it.

They will oversee the sales agreement to ensure it is in your best interest, they will manage the transfer of mortgage funds, exchange contracts with the seller or their conveyancer and set a completion date with the seller or their conveyancer.

In this brief guide, we answered the question ”does an agreement in principle guarantee a mortgage”.

If you have any questions or comments please let us know.

John Bate

John has 22 years of experience in financial services. This spans across financial research, financial services (As a qualified mortgage broker and underwriter), financial trading and sales at global investment banks. While working as a publishing research analyst, he covered European bank credit and advised institutional clients on investment strategies at both JP Morgan and Societe Generale. John has passed all three levels of the CFA (Chartered Financial Analyst) programme.