Buy to Let Agreement in Principle

Hello, and on this episode of the Mortgage and Protection podcast, we have Scott here from Propertyze to explain how an agreement in principle for a buy to let mortgage works. Welcome back, Scott. How's it all going? Thank you very much for having me. Yeah, it's going well. Thank you. Starting the year fairly busy, so can't complain. No, definitely not. That's good news. We're recording this towards the end of January 2025. So let's get straight into the questions that we've got here then. So just to recap, first of all, what is an agreement in principle and why do I need an agreement in principle for a buy to let? So an agreement in principle or AIP or a DIP, you might hear them call decision

in principle. It's a document from a lender indicating how much they're willing to lend you, outline basically the terms they're prepared to offer you in total. So the buy to let, they're crucial. It demonstrates that the lender's firstly happy with the loan amount and the property details with the credit score and the affordability, which is a key point for buy to let. Very useful if you're looking to purchase a new property because estate agents will probably want to see these just to verify that you have the means to purchase. Right. Okay, brilliant. Well, there we go. Clearly explained, which leads us on to the next question. So how do I get an agreement in principle or AIP for short for a buy to

let mortgage? So to get an AIP, you'll need to approach a lender or a mortgage broker directly and go through their process. So there are some lenders you can do this with directly. A large portion of them are broker only because it's not a regulated type of business. So a broker will go onto the lender's website and complete the details required to do that. Usually it's quite brief, not a great deal of details needed. At that stage, more information comes during the full application. So they're fairly easy to obtain and can be done quite quickly. Right. Okay. Well, that's good news there. So let's continue onto this question. So people would like to know, do I have to have an AIP through the estate agent I'm looking to

purchase through? No, you don't. And don't let them convince you that you do. It's quite common that the estate agents will insist that you use their broker, their in-house mortgage teams. You don't have to. There's no requirement for you to, and they can't force you to. They're just trying to strong arm you because they get paid. They earn twice than they earn on the sale and they earn on the mortgage side of things. So no, you don't have to. You're free to use whoever you want directly or with a broker. Okay. So that answers that one there then. Now moving on to this question. Can I make an offer on a buy-to-let property with an agreement in principle? Yes, you can. You don't need to have a dip or AIP to make an offer on a property. However,

most estate agents will probably want to see one or proof of funds. So if you're particularly wealthy and have cash in the bank that will cover the purchase costs, although you may not intend to use it, you can just demonstrate a bank statement to say, I can afford to buy it. But in most cases, an AIP would certainly help the estate agent present your offer to the sellers. Right. Okay, there we go. So something to bear in mind there. Now you might have touched on this actually already, but how do I apply for an AIP for a buy-to-let and how long does this take? So most AIPs are usually instant. It'll tell us straight away whether it's accepted, referred or declined. If it's referred or declined, it will normally tell us why. It won't necessarily

give us specifics if it's credit related, for example. It might just say if they will not credit score or referred for credit review. But we get details if there's an issue to let you know what we're doing, but it should be back usually instantly. So yeah, that's that one. And I mean, submitting them is straightforward for us. If you're doing it directly, you'll see the process is fairly simple. If you're coming through a broker, we'll cover off the requirements with you. Right. Okay, there we go. So that's all useful to know. And that kind of ties in with the next question it leads us on. So what informational documents do I need to get an agreement in principle for a buy-to-let mortgage? Anything else to add here?

Just to get the decision of principle, you won't need to provide any proof of income or other details at that point. Those will come during the full mortgage application if the lender requests them. So to get the decision of principle, really all the broker will need is your name, your address, some details of your incomes, details of the purchase property. I expected rental income with things for the property, but there's no proof required of those at the moment. So it's key that you get those details right so that your broker can input the details correctly and your decision in principle accurately reflects the real case. If you unfortunately tell the broker that the rental income is £2,000 and when he

gets the valuation, the valuer says it's worth £1,200 a month, it could dramatically impact your loan. So giving the right details up front for that dip ensures your product matches what you get to offer. Okay, so all useful to know there and all clear as well. Let's continue on to this question. So how is affordability calculated for a buy-to-let mortgage AIP? Affordability is primarily based on the property's rental income. So depending whether you're a personal or limited company purchase, the numbers will change. Depending whether you're going for a two or a five year, it will change again. And basically that covers off the taxation point. Building in a buffer so that there's rent, that's what we're looking for.

Vacancies covered. So if you've got a vacancy in the property between two tenants, you know, two or three months maybe, you know, worst case is enough surplus there to cover those. Repairs, maintenance, that sort of thing. So the lender's calculations cover off either 125% or 145% of the mortgage payment. So just make sure there's a buffer in there for those points. And so it does depend. The broker will be able to tell you your affordability based on firstly, what's a personal or limited company and your product choice as you speak to them. Right. Okay. Brilliant. Well, thank you for breaking all of that down there. So moving on to the next two questions that we've got combined here. So is an agreement

in principle guaranteed? And can my buy-to-let mortgage be declined after an AIP? Good question. No, an AIP is not a guarantee and it can be declined after. So as I kind of mentioned earlier, if the details we gave when we give the decision of principle over to them is accepted, but the details change later on through evaluation, through legal, through us to find documentation about yourselves, then the case might change, the product might change, the loan to value might change, or the lender might decline the case. So it's imperative that we get the right details upfront to ensure that that transition is through to offer. Because if anything crops up in the middle that we didn't know about, or something changes,

it can throw the whole case out. Right. Okay. So something to be aware of there. Now, I think with the next point, you might have touched on this already when it comes to credit check, credit scores. Will I need a credit check for a buy-to-let AIP? Does a AIP or DIP decision in principle affect credit score? That depends on the lender. The majority of lenders these days do a search, which is visible to you, but visible to nobody else. So if you log onto your credit board, you'll see that the mortgage works to soft search on you. Nobody else will see that. It won't impact your score. There are a few lenders that still do hard searches, and I can't remember exactly who they are now, but there's four or five, I think, that still do hard searches.

Those will impact your credit score. So just be mindful of asking your broker if you're using a broker, how that might work. And the credit check at that point is largely just checking for either score or recent mispayments and things that might impact the application. Right. Okay. So some useful points there to bear in mind as well and to take away from the episode. And just following on from that, then people would also like to know how will bad credit affect an agreement in principle? It will affect it. It will change our lender choice, likely to change your product costs as well. So if you've got completely clean credit, sorry, I put my teeth back in, then you've got options. Of course, you can pick any product you like, let me lend you like.

As your credit worsens, more and more of those lenders become less available. But even with very bad credit, there's still a lot of options out there to look at. So it's just being transparent with your broker about what is on the credit board when it happened, and they can work with you to make sure you get a product that suits you. Right. Okay. Well, hopefully that sounds reassuring to anyone listening to this that that might apply to. So we've got two or three questions left. The next one here asks, I've been declined an agreement in principle. What can I do? So what happens next? If you've already been declined, it's not a problem. It just means that you went to the wrong lender. What we'll do is we'll go through firstly, what information you gave the previous lender.

We'll check that the information we have is correct, and then we'll pick a lender that's appropriate. So it might just be that you submitted an application to a lender, and because some lenders credit score, they look at the actual number of the score, your credit report, though it's clean, there's nothing missed. The score wasn't high enough that lender declined you. So we just go to a lender that will accept that. So it's just understanding what it was declined for and picking a lender that we can work with. Right. Okay. There we go. So again, hopefully that's useful to know there, and hopefully that sounds reassuring if that has happened to you. So you've demonstrated this already, Scott, really, but what are the benefits of getting

an AIP with a mortgage broker? How can a mortgage advisor help? So anything else to add here? Yeah. I mean, a mortgage broker can save you time and effort, certainly because we know who to look at first based on circumstances. But more than that, if in the event that a decision in principle is declined or is referred, we can phone the lender, work out how to either work with them to resolve a point or move you to a lender that's more appropriate. It's a lot of headache saving just by using a broker. Okay. Well, there we go. A useful point to end on as well there. Thank you for that, Scott. Hopefully that's proof useful to anyone listening to this. And I'm sure we'll catch you on another episode soon. Perfect. I look forward to it.

Please note, 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.