When stepping into the world of home buying, particularly as a first-time buyer, you’re likely to encounter a slew of advice—some helpful and some potentially misleading. A common question many new buyers face is whether to secure a mortgage agreement in principle before making an offer on a house. The Daily Mail recently spoke to some experts to get their advice.

What is a Mortgage Agreement in Principle?

A mortgage agreement in principle (AIP) is essentially a pre-approval from a lender stating how much they might lend you based on an initial assessment of your financial situation. It’s not a full mortgage offer but it can give you and potential sellers confidence in your ability to secure financing. However, an AIP is not mandatory to make an offer on a home, although it can indeed strengthen your position as a buyer.

The Role of Estate Agents in Your Mortgage Journey

It’s not uncommon for estate agents to request that potential buyers have an AIP in hand. This practice helps agents determine if buyers are serious and financially prepared. However, this requirement can sometimes be used to steer clients towards using the agency’s preferred mortgage brokers, who often pay referral fees to the agents.

Pros of Having an AIP

• Boosts Buyer Credibility: Having an AIP shows sellers that you are a serious contender for purchasing a property, potentially making your offer more appealing compared to others who don’t have an AIP.
• Clarifies Budgeting: It gives you a clearer picture of how much you can borrow, which can guide your house hunting process towards properties you can realistically afford.

Cons of Having an AIP

• Potential Credit Score Impact: Obtaining an AIP usually involves a credit check, which can leave a footprint on your credit file. Although many lenders now perform a ‘soft check’, which doesn’t affect your credit score, it’s important to confirm this beforehand.
• False Security: An AIP is not a guarantee of mortgage approval, and discrepancies found later in the application process can still result in a rejection.

Views from the Experts

• David Hollingworth (L&C Mortgages): Hollingworth suggests that while first-time buyers might not need an AIP, it does provide a clear indication of borrowing capacity and can alleviate any concerns about financing.
• Nicky Stevenson (Fine & Country): Stevenson points out that while not strictly necessary, an AIP can significantly strengthen a buyer’s position, signaling readiness and financial reliability to sellers.

Alternative Views

• Chris Sykes (Private Finance): Sykes warns that AIPs often don’t involve rigorous checks and might give a misleading sense of security. He also notes that the validity of an AIP can expire, which may not align with the time it takes to find the right property.

Why Might Estate Agents Push Their Brokers?

There’s a financial incentive for agents to direct buyers towards specific brokers due to referral fees. However, buyers should feel free to choose their independent financial advisors or lenders that best meet their needs, without pressure to use in-house services.

Should You Get an AIP?

Deciding whether to obtain an AIP should be based on your personal circumstances and the specifics of your property search. If you’re in a competitive market or if you’re unsure of your borrowing capacity, an AIP could be advantageous. Conversely, if you’re confident in your financial assessment and market conditions are less competitive, you might choose to wait until making an offer before formalising your mortgage application.