Do I want a mortgage agreed in precept earlier than I provide on a property?

I’m a first-time buyer and have been told by an estate agent that I need to have a mortgage agreed in principle before I can make an offer on a home. They said my offer won’t be taken seriously without one.

I fear they are using this as a tactic to pressure me into using their recommended mortgage broker, which I don’t want to do.

I explained to the agent that I have already spoken to a broker who advised me that an agreement in principle isn’t necessary and will leave a footprint on my credit file. Their advice was to contact them as soon as my offer is accepted.

Who is right? Do I need to get an agreement in principle before house hunting or is this something that can wait until after my offer is accepted?

Ed Magnus of This is Money replies: This is a conundrum that many first-time buyers will face. Some estate agents are very specific about needing an agreement in principle when viewing properties or making an offer, while others may not even mention it.

You are also right that some estate agents like to steer buyers into using their recommended broker, which enables them to profit from referral fees.

Most estate agents should in theory ask if you have an agreement in principle in order to suss out whether you are a serious buyer or not. 

They are acting in the seller’s best interests, and don’t want to waste their time. 

To make matters more complicated there are basic mortgage in principle certificates available with some brokers that are different from a full agreement in principle.

These basic certificates tell you how much you may be able to borrow, based on information that you provide.

It’s not a guarantee of being accepted, because it is all self-certified and there is no credit check. However, these basic certificates can often satisfy estate agents who essentially just want to tick a box to say they have received an agreement in principle.

> What next for mortgage rates and should you fix for two or five years? 

A full blown agreement in principle is more intensive as it will be with a specific lender and involve a credit check.

Before you apply, your broker will need details of existing credit agreements, three years of address history, details of income and whether you are employed or self-employed.

The lender will then credit check you to make sure everything matches up. This can leave a footprint on your credit file, though some lenders now only do a soft credit check.

Mortgage broker L&C, which provides This is Money’s mortgage rate comparison tool,  says an agreement in principle typically lasts for between 60 and 90 days, although if your house search takes longer it should be possible to extend it as long as your circumstances haven’t changed.

Even a full agreement in principle isn’t a guarantee you will be accepted for a mortgage, though. 

This is because the lender could then reject the main application based on their underwriting checks, or due to the survey or valuation on the property. 

For expert advice, we spoke to David Hollingworth, associate director at L&C Mortgages, Chris Sykes, technical manager at broker Private Finance and Nicky Stevenson, managing director at national estate agent group Fine & Country.

Do you need an agreement in principle? 

David Hollingworth replies: First-time buyers don’t necessarily need have to have an agreement in principle. 

However, it’s often the case that they will want to have a clear understanding of what they can borrow, as this will tell them what kind of properties they should be looking at and their price limit. 

It may be that a conversation with a mortgage adviser about how much they need to borrow and whether a lender is likely to give them that is enough.

But an agreement in principle would give a clearer outlook as the lender will check their credit record and score. If there’s any anxiety about whether they will qualify this can help allay any fears. 

Where an agreement in principle can help is in demonstrating to estate agents that you are in a position to proceed. 

There is no need to use an agent’s in house broker though and although the agent may want to be able to give the vendor some reassurance, they should put forward any offers without there being a need to use their other services. 

Nicky Stevenson replies: While an agreement in principle is not strictly necessary for making an offer on a property, it can certainly strengthen your position as a buyer.

It demonstrates to the seller that you have taken steps to secure financing and are a serious contender.

As a seller, given the choice between two buyers needing a mortgage, one with an agreement in principle and one without, the preference would typically be for the buyer with the agreement in principle.

An agreement in principle involves a credit and income check by lenders to estimate a buyer’s maximum mortgage and allow them to look at properties within their price range.

It’s important to remain objective and make decisions that align with your best interests. 

Your broker’s advice to hold off until an offer is accepted is valid as it means, until an offer is accepted, you avoid unnecessary credit checks.

An independent broker is worth engaging with because they will be able to access and compare different rates from across the board which best suit your needs.

Ultimately, the decision rests with you, the buyer. If you are confident in your financial standing and have already discussed your options with a reputable broker, you may choose to proceed without an agreement in principle initially. 

But be prepared to obtain one swiftly if your offer is accepted, as this will speed up the mortgage approval process.

Navigating the home-buying process can be tricky so it’s important to weigh up the advice of professionals.

Trust your instincts, ask clarifying questions, and make informed decisions that prioritise your goals and financial wellbeing.

Will an agreement in principle hurt your credit score? 

David Hollingworth replies: In the past, more lenders would leave a hard footprint on the file and multiple decisions could ultimately prove counterproductive.

Now, some agreements in principle only need a soft check of the credit file so shouldn’t affect future scoring.

Soft credit checks doesn’t leave a visible footprint on your credit file, which means other lenders can’t see it and it won’t impact your overall score.

Chris Sykes adds: It would be worth checking with a broker to ascertain whether the lender will do a soft or hard check. Some lenders opt for soft checks and others opt for hard checks.

Hard checks leave a mark on your credit file that other lenders will be able to see and can also reduce your credit score.

Does an agreement in principle guarantee me an offer?

David Hollingworth replies: It’s worth understanding the limitations of an agreement in principle.

They aren’t a guarantee and once the formal application is made, the lender will need to see back-up documentation which could lead to more questions. 

Taking an agreement in principle with a lender now because they have competitive products on offer may not necessarily still be the case once a property has been found, so it is better to revisit the market at that point.

The argument against an agreement in principle

Chris Sykes replies: An agreement in principle generally doesn’t involve a lender checking any documentation most of the time, and there is no commitment whatsoever that the case will ultimately be accepted.

They do involve a credit check and generally last for 30 days. People can take a year to find a property, so you wouldn’t want 12 credit searches in that time.

Some estate agents request to see an agreement in principle. But there have been plenty of times when people have approached me with an agreement in principle they’ve done online with their bank, and then declined at application stage because the agreement in principle was completely unrealistic. 

There are a lot of nuances when it comes to assessing how much someone can borrow.

Often people don’t know how to calculate their income in the same way a lender will actually assess it during the full application. 

Self-employed income, bonuses, commission and contract work are all assessed differently by lenders.

If you are looking to borrow 90 to 95 per cent of a property’s value and have very little credit history, perhaps because you don’t have a credit card or any finance at all, lenders are more strict. 

It may be advisable to get an agreement in principle just to double check the minimum credit checks are passed, but most are fine as long as there is a credit presence and nothing negative.

You can see this yourself by checking your credit file via one of the credit referencing agencies such as Experian or Equifax, or on the website Checkmyfile. 

Why do estate agents push a recommended broker?

Nicky Stevenson replies: The agent’s insistence may be a way to steer you towards their preferred mortgage broker, likely because they receive commissions for referrals, but it could also be because they work with a trusted preferred partner.

While the estate agent may encourage you to use their in-house mortgage advisor, you have the freedom to choose any lender or independent broker.

Ed Magnus of This is Money adds: Buyers sometimes report that some estate agents will only put forward offers if they agree to use their in-house mortgage advisors, or a separate brokerage firm that the estate agent is in partnership with. 

The practice, known as conditional selling, enables estate agents to profit from referral fees.

This estate agent tactic means buyers who refuse to be ‘qualified by an agent’s mortgage advisors’ could be losing out unfairly on homes they offer on. 

Estate agents who don’t pass offers to sellers for these reasons are in breach of their professional duties and can face sanctions, according the National Trading Standards Estate and Letting Agency Team.