Buy to Let Agreement in Principle
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Buy to Let Agreement in Principle
Sam Bull from JB Mortgages explains how an Agreement in Principle works for a Buy to Let mortgage.
What is an Agreement in Principle (AIP) and why do I need one for a Buy to Let?
An Agreement in Principle, sometimes referred to as a Decision in Principle, is a statement from a mortgage lender showing how much they’ll be willing to lend you for a Buy to Let mortgage.
It’s the very first step in securing a new mortgage and it will often involve a credit check. For landlords and investors, it proves to estate agents and sellers that you’re a serious buyer – and it can also help you understand your borrowing capacity before you make an offer.
How do I get an Agreement in Principle for a Buy to Let mortgage? What is the process here?
We first complete an initial fact-find to run through your financial information. We’ll discuss the mortgage requirements, and once we’ve got the necessary information, we’ll run a credit check with the mortgage lender.
Assuming that there’s no issues with your credit history, we’ll get the Agreement in Principle certificate.
Do I have to have an Agreement in Principle through the estate agent I’m looking to purchase through?
No, you’re under no obligation to use the estate agent’s in-house mortgage advice. You’re free to choose your own lender and mortgage advisor. That’s completely up to you.
What matters is that your Agreement in Principle is valid and credible. It’s not important who arranged it.
Can I make an offer on a Buy to Let property with an Agreement in Principle?
Yes, you can make an offer on a Buy to Let property with an Agreement in Principle. Most estate agents will actually expect you to have your Agreement in Principle ready.
This shows you’re prepared – you’ve got your mortgage provisionally agreed, subject to the full application. That will put you in a better position and make your offer more likely to be accepted by the vendor.
How do I apply for an Agreement in Principle for a Buy to Let? How long does this take?
Applying is straightforward. We’ll run through that initial fact-find as previously mentioned. That’ll involve providing some basic details about your income, your outgoings and the property that you’re interested in. Then we’d run the credit checks.
Many lenders can issue an Agreement in Principle within a matter of minutes, whereas some mortgage lenders might take 24 to 48 hours if they need to do extra checks.
What information or documents do I need to get an Agreement in Principle for a Buy to Let mortgage?
Typically we’ll need to know the property details. That’ll include the property value, your ideal deposit amount and what the expected rental income is.
The documents would be the same as any mortgage application, which would include ID, proof of deposit, proof of income and three months’ bank statements.
How is affordability calculated for a Buy to Let mortgage Agreement in Principle?
Like residential mortgages, affordability for Buy to Let is based mainly on the rental income. Mortgage lenders usually require the rent to cover 125% to 145% of the mortgage interest. This is sometimes stress tested at higher interest rates.
On some applications, your personal income may be considered, especially if the rental income is borderline. This is called top slicing.
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Everyone’s different. You might be self-employed. You might have some credit history issues – whatever your situation, we will find the most suitable product available to you from across the whole market.
Is an Agreement in Principle guaranteed? Can my Buy to Let mortgage be declined after an Agreement in Principle?
No, the Agreement in Principle is not guaranteed. It’s just an initial indication. Once we’ve submitted the full mortgage application, the lender will carry out a deeper check and maybe even a hard credit check.
They will do a property valuation and a full assessment of your paperwork. It is possible to be declined at that stage if something doesn’t meet their criteria.
As a mortgage broker, we would check all your paperwork and the property details upfront – that minimises the chance of being declined for a full application.
Will I need a credit check for a Buy to Let AIP? Does an AIP affect credit score?
Yes, mortgage lenders always need to run a credit check. Most will use a soft search at the Agreement in Principle stage, which doesn’t affect your credit score.
However, most mortgage lenders will then do a hard search once the full mortgage application has been submitted. That will leave a footprint on your credit report.
How will bad credit affect an Agreement in Principle?
If you do have bad credit, some mortgage lenders will decline your Agreement in Principle automatically. It’s important to tell your broker upfront if you’ve had any issues with your credit history at all – such as missed payments, CCJs, defaults or anything else you’re aware of. Your broker will then get a copy of your credit report to review this.
If you’ve had issues with your credit history in the past, there are mortgage lenders who would be happy to lend, subject to what’s showing on the credit report.
I’ve been declined an Agreement in Principle. What can I do?
Being declined doesn’t mean you can’t get a Buy to Let mortgage. It may be due to a lender’s specific criteria – it’s always best to speak with a mortgage broker.
We will review your situation and discuss exactly why it was declined – and then look to find a more suitable mortgage lender for your credit profile or the property you’re interested in.
What are the benefits of getting an AIP with a mortgage broker? How can a mortgage advisor help?
A mortgage broker can compare deals across multiple mortgage lenders and save you time and paperwork.
If you have complex income or issues with your credit history, we’ll match you with an appropriate lender. Most importantly, we can increase your chances of your mortgage being approved first time.
For Buy to Let investors, criteria can often be stricter. A mortgage broker’s expertise can make the difference between either getting declined or having a successful application.
Key Takeaways:
- An Agreement in Principle (AIP) is a statement from a mortgage lender indicating how much they are willing to lend for a Buy to Let mortgage.
- An AIP is the first step in securing a mortgage and proves to estate agents and sellers that you are a serious buyer.
- You are not obligated to use the estate agent’s in-house mortgage advice for your AIP; you can choose your own lender and advisor.
- While an AIP allows you to make an offer on a property, it is not a guarantee, and a full mortgage application can still be declined after a deeper check.
- A mortgage broker can compare deals across multiple lenders, save time, and increase the chances of your Buy to Let mortgage being approved, especially for complex cases or stricter criteria.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.
THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE MOST BUY TO LET MORTGAGES.
