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Agreement In Principle

Definition of 'Agreement In Principle'

An agreement in principle is not as strong as many would like it to be. It simply means that your application is not likely to be turned down on the information so far provided to the lender. Agreement in Principle is often abbreviated to ‘AIP’ - credit slang for ‘you appear to meet the criteria, but we’ll have to check things out’.

An agreement in principle is not legally binding, so don’t rely on this until you have a full credit offer.

Typically agreement in principle is given which is subject to something else, such as satisfactory valuation of a property or certification of claimed income. In mortgage lending, some people like to know how much they can borrow before going house hunting, and they obtain an agreement in principle to a mortgage without knowing which property they are likely to buy.

The agreement in principle in that case would be subject not only to the satisfactory valuation of the property, but also that the property itself falls within the mortgage lender’s policy (typically that it is UK based, freehold or long leasehold, not contaminated, structurally sound and so on).

It is much less likely that agreement in principle will be subject to a satisfactory credit report, as these are easy and cheap to obtain for a lender, and nowadays most lenders would check your credit report and satisfy themselves that all appears correct before issuing an agreement in principle.

Contrary to popular opinion, and as previously mentioned, we can’t stress enough that an agreement in principle is not legally binding on a lender. An agreement in principle should be regarded as a positive step in one of many in the loan or mortgage process, but no more.

Specific conditions of the agreement in principle typically will be subject to change or withdrawal if your circumstances change or you don't meet the lender's criteria.

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