Many homebuyers come across the terms “Decision in Principle” (DIP) or “Agreement in Principle” (AIP) early in their property search. This initial agreement from a mortgage lender is a crucial first step in securing a mortgage, helping buyers understand their potential borrowing amount.
A DIP involves a preliminary assessment of affordability, credit checks, and an initial indication of borrowing potential. Understanding the process, its impact on credit scores, and its role in property buying can strengthen your position in the UK property market.
What Is a Decision in Principle?
A Decision in Principle (DIP) is a lender’s written indication of the amount they may be willing to lend a borrower based on an initial assessment. It is not a formal mortgage offer but serves as an essential step in the mortgage application process.
Definition and Alternative Names
A DIP is known by several interchangeable terms, including:
- Agreement in Principle (AIP)
- Mortgage in Principle
- Mortgage Promise
- Lending Certificate
Purpose of a DIP
A DIP provides clarity on how much a buyer can borrow, helping them search for properties within their budget. Estate agents and sellers often request a DIP as proof that a buyer is financially capable of purchasing a property.
Non-Binding Nature of a DIP
A DIP does not guarantee final mortgage approval. The actual mortgage offer depends on further checks, including:
- A full review of income and expenditure
- Supporting documents (e.g., payslips, bank statements)
- A detailed credit assessment
- A property valuation
DIPs are typically valid for 30 to 90 days, depending on the lender. If your financial situation changes during this period—such as taking out new credit or a reduction in income—the DIP may no longer be valid.
The DIP Application Process
Applying for a Decision in Principle requires preparation and the submission of key financial details.
Information Required for a DIP
Lenders will typically request:
- Photo ID (passport or driving licence)
- Proof of address (utility bill, council tax statement)
- Address history for the past three years
- Proof of income (3-6 months’ payslips or SA302s for self-employed applicants)
- Bank statements (last three months)
- Details of existing financial commitments (loans, credit cards, car finance, etc.)
How to Apply for a DIP
You can obtain a DIP through various channels:
- Directly from banks and building societies
- Via online mortgage platforms
- Through mortgage brokers, who can find lenders suited to your financial situation
Lenders use affordability calculators and conduct credit checks to determine eligibility. Ensuring that all personal and financial details are accurate is crucial to avoiding issues later in the mortgage application process.
Timeframe for Receiving a DIP
A DIP can be issued within a few minutes to 24 hours, depending on the lender. The validity period typically ranges between 30 and 90 days. If your DIP expires before you secure a property, you may need to request a new one.
Importance of a DIP in the Home Buying Process
A DIP provides several advantages for buyers in the UK property market.
Proving Your Borrowing Capacity to Estate Agents
Estate agents and sellers often require a DIP before allowing viewings or accepting offers. A DIP confirms that a buyer has passed initial financial checks, strengthening their credibility.
Establishing a Realistic Budget
A DIP helps buyers focus on properties within their borrowing limits, avoiding wasted time viewing homes they cannot afford. Knowing your borrowing capacity early on makes the property search more efficient.
Strengthening Your Position as a Buyer
A DIP demonstrates to sellers that a buyer is financially prepared, potentially giving them an advantage in competitive situations. Some sellers may prioritise buyers with a DIP over those without one, as it reduces uncertainty.
Potential Impact on Credit Score
Homebuyers should be aware of how a DIP affects their credit profile.
Soft vs. Hard Credit Checks
Lenders use two types of credit checks when assessing a DIP application:
- Soft credit check: Does not affect your credit score and is visible only to you.
- Hard credit check: Leaves a mark on your credit report and can slightly impact your score.
Most UK lenders now perform soft credit checks for DIPs, allowing buyers to explore their mortgage options without affecting their credit rating.
Multiple DIP Applications and Credit Score Impact
Applying for multiple DIPs in a short period can signal financial distress to lenders. However, credit scoring models typically treat multiple mortgage-related checks within a short timeframe as a single inquiry to minimise impact.
Duration of DIP Validity
A DIP remains valid for 30 to 90 days, depending on the lender. If significant changes occur in your financial circumstances, such as taking on new debt or a change in employment, the lender may reassess your eligibility.
Conclusion
A Decision in Principle is a crucial early step in the mortgage process, giving buyers clarity on their borrowing potential. It provides a useful tool for property searches, strengthens credibility with estate agents and sellers, and streamlines the mortgage application process.
Managing your DIP application carefully can help protect your credit score and borrowing options. Since most UK lenders now conduct soft credit checks for DIPs, buyers can explore mortgage options without negatively impacting their credit profile.
FAQs
What is a Decision in Principle (DIP)? A DIP is an initial assessment from a lender indicating how much they may be willing to lend based on preliminary financial checks. It is also known as an Agreement in Principle (AIP) or Mortgage in Principle.
What other names are used for a Decision in Principle? A DIP is sometimes called an Agreement in Principle (AIP), Mortgage in Principle, or Mortgage Promise.
Does applying for a Decision in Principle affect my credit score? Most lenders conduct soft credit checks for DIPs, which do not affect your credit score. However, some lenders may carry out a hard credit check, which can have a small impact.
Can my mortgage application be declined after receiving a Decision in Principle? Yes. A DIP is not a guarantee of a mortgage offer. A full application involves further checks, including an in-depth review of income, expenses, credit history, and property valuation.
