Why is an agreement in principle so important?

In this blog, we’ll explain what an agreement in principle is and how it can benefit you as you look to buy or move home.

The changes in government guidelines around social distancing are potentially making it easier to move home. So, if you are looking to move, it is a good time to speak with a professional mortgage broker.

A Mortgage Broker can assist you with reviewing your mortgage options in what is a challenging time with lending criteria. So, gaining a Mortgage Agreement in Principle has probably never been more important.

Why is an Agreement in Principle important?

An agreement in principle shows that you are serious about your intentions to buy and that you have done your homework. Both property sellers (vendors) and Estate Agents are far more likely to accept an offer on a property where the prospective purchaser has an agreement in principle.

Having taken steps to arrange your Mortgage Agreement in Principle will also generally speed up the mortgage process and gaining a mortgage offer.

You may have heard of an agreement in principle being called:

– A Mortgage in Principle

– Decision in Principle

– Approval in Principle

– Mortgage Promise

Agreements are a confirmation from a lender/broker stating that a lender will potentially lend a certain amount to you before you’ve finalised the purchase of your home. We say “potentially”, as a full mortgage application will involve a full underwriting assessment by the respective lender of all information, supporting documentation and a property survey / valuation. This cannot be achieved by completing a Mortgage Agreement in Principle.

It should be noted that many online agreement, systems and processes will take only basic information and do not request supporting documentation for review. These very basic assessments may be misleading as only basic information is assessed.

picture of a wooden house sitting on money

What are the Steps to gaining a Mortgage Agreement in Principle?

 A mortgage agreement can be gained from individual lenders; however, it is important to note that online systems will only take account of the information that you supply and give you access to the individual lenders decision-making and equally products.

 Mortgage brokers will give you access to a wide range of lenders and their differing criteria and affordability assessments. This will generally give the mortgagee a wider range of options to consider.

 Information required to undergo a full mortgage agreement are details, such as;

– Address history

– Employment information

– Income

– Family / Dependents

– Financial Commitments / Existing Mortgage Commitments

– Credit history

Supporting documents would also be required by most lenders when applying for a mortgage and it makes sense to get these reviewed by a professional during the Mortgage Agreement process.

By taking this step, it will make the accuracy of the research more exact. Equally, this will dictate which lenders will potentially accept an application based on the amount of loan required. Typically documents required will consist of the following (but are not limited to);

– Proof of ID

– Proof of address

– Residency status

– Proof of income, last 3 months wage slips or 2 years tax calculations for self employed (for variable pay this assessment is imperative to give an accurate assessment)

– Last 3 months Bank Statements

– Cutting out these important steps could provide you with inaccurate assessments being made and lead to disappointment. Especially if a mortgage application is subsequently declined.

Why, it’s a good idea to get an agreement in principle?

A full mortgage agreement process undertaken by mortgage brokers will generally give you a better understanding of;

– Can you get a mortgage?

– How much can you borrow?

– What interest rates are available to you?

– How much will your mortgage cost?

– What other costs are involved?

Getting a mortgage agreement completed early in the home buying process is an important step. If completed accurately it will give you parameters as to what potential properties are within your grasp.

An agreement in principle will give you the comfort of knowing that you have been professionally assessed for criteria, affordability and the recommended lender will have performed a credit check.

It will also offer some reassurance that you’ll be able to buy a property, especially if you have any concerns regarding elements such as your credit history.

A mortgage agreement in principle will typically last between 60 and 90 days, dependent upon the lender. If it expires before you need it, you can always re-apply, but be careful about requesting too many agreements in principle. Lots of credit searches could damage your credit score.

To get an agreement in principle, you’ll either need to approach a mortgage lender directly or apply through a mortgage broker, like My Mortgage Experts. A lender will only be able to make an agreement based on their criteria, affordability calculations and their credit score assessment.

A broker will be able to assess your position across a broad range of lenders, who will all have very differing criteria, affordability assessments and attitudes towards a credit profile.

It should be noted that you do not need to go through the full mortgage application process to get an agreement in principle. This will come once you’ve had an offer on a property accepted.

Gaining your Mortgage Agreement in Principle

Our team of mortgage brokers and para-planners are mortgage professional and are experienced in assisting clients to gain a Mortgage. Our aim being to find you the most suitable mortgage to meet your needs and requirements. Then to gain you a mortgage agreement in principle quickly.

 One of the first steps with My Mortgage Experts in being able to gain you an Agreement in Principle, is understanding your personal requirements This can then progress to providing you with personalised research. This is an important step to ensure that you gain an agreement with the most appropriate lender to suit your needs and circumstances.

We have 2 routes, firstly the Full Assessment (recommended) and secondly an online Mortgage Eligibility Check.

The Full Assessment would be our recommended route as this we can help you follow the processes already described in the paragraph “What are the steps to gaining a Mortgage Agreement”. This method will give you the most accurate assessment and results, schedule a time to gain your Mortgage Agreement in Principle

The My Mortgage Experts “Mortgage Eligibility Check”, will give you a quick indication as to whether we believe we can get you a mortgage (this is subject to credit score and financial assessment). This quick and simple process generally only takes a couple of minutes to complete and will give you an instant result once you have completed the online form. This process does not conduct a credit check so will not leave a footprint on your credit file. At the end of the process you can download your personalised Mortgage Agreement Certificate.

Our recommendation would be to engage in our more detailed assessment. By doing this you will benefit from personalised research and a full assessment. This will provide you a greater assurance that the mortgage you need is achievable. As a minimum, we would suggest that you need to supply all relevant information that a lender would require to assess during a full mortgage application.

Working with a broker like My Mortgage Experts will offer you a professional and personal service and protect you from unnecessary Credit Checks.

Note that generally, My Mortgage Experts do not charge you for gaining a Mortgage Agreement

 Other tools available to help with questions you may have;

How much will my mortgage cost?

How Much an I borrow?

Search for a Mortgage

Mortgage Eligibility Check

Schedule an Initial Mortgage Consultation

To find out more about how we can help you secure an agreement in principle, get in touch today:

Contact Us Today

Give us a call on 01604 300033 or please feel free to fill in the enquiry form on our contact page today or Schedule a convenient appointment

“A MORTGAGE IS A LOAN SECURED AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE OR ANY OTHER DEBT SECURED ON IT.” 

Stamp Duty Land Tax: temporary reduced rates

Stamp Duty Update July 2020

Stamp Duty Land Tax: temporary reduced rates

Reduced rates of Stamp Duty Land Tax (SDLT) will apply for residential properties purchased from 8 July 2020 until 31 March 2021 inclusive.

Residential Rates on purchases from 8 July 2020 to 31 March 2021

If you purchase a residential property between 8 July 2020 to 31 March 2021, you only start to pay SDLT on the amount that you pay for the property above £500,000. These rates apply whether you are buying your first home or have owned property before.

You can use the table to work out the SDLT due:

Property or lease premium or transfer value SDLT rate
Up to £500,000 Zero
The next £425,000 (the portion from £500,001 to £925,000) 5%
The next £575,000 (the portion from £925,001 to £1.5 million) 10%
The remaining amount (the portion above £1.5 million) 12%

From 8 July 2020 to 31 March 2021 the special rules for first time buyers are replaced by the reduced rates set out above.

Use the SDLT calculator to work out how much tax you’ll pay.

Higher rates for additional properties

The 3% higher rate for purchases of additional dwellings applies on top of revised standard rates above for the period 8 July 2020 to 31 March 2021.

The following rates apply:

Property or lease premium or transfer value SDLT rate
Up to £500,000 3%
The next £425,000 (the portion from £500,001 to £925,000) 8%
The next £575,000 (the portion from £925,001 to £1.5 million) 13%
The remaining amount (the portion above £1.5 million) 15%

New leasehold sales and transfers

The nil rate band which applies to the ‘net present value’ of any rents payable for residential property is also increased to £500,000 from 8 July 2020 until 31 March 2021.

The following rates will apply:

Net Present Value of any Rent SDLT rate
Up to £500,000 Zero
Over £500,000 1%

Companies as well as individuals buying residential property worth less than £500,000 will also benefit from these changes, as will companies that buy residential property of any value where they meet the relief conditions from the corporate 15% SDLT charge.

On the 1 April 2021 the reduced rates shown in the above tables will revert to the rates of SDLT that were in place prior to 8 July 2020.

For further guidance please use the SDLT calculator or the Government website.

Please note that My Mortgage Experts cannot advice you in relation to tax advice, we are not tax advisers. This blog is published for information only.