Buy to Let Agreement in Principle

Will I need a credit check for a Buy to Let AIP? Does this affect credit score?

Yes, most lenders will check your credit, but they typically do a “soft search.” Normally, this does not affect your credit score. However, be aware that doing too many soft checks can affect your score, because lenders will see that you have done multiple checks on your name. The hard check on your credit score is done once you submit the full application.

How will bad credit affect an Agreement in Principle?

Bad credit does not automatically rule you out from getting an AIP. It changes where you can get your Agreement in Principle from. Certain high street lenders usually do not take bad credit into account. You would then look at other lenders – the smaller banks you may not see on the high street – who will take it into account. The worse your credit is, the less likely you are to get lending, but every credit account can be looked at to try and find a suitable lender.

I’ve been declined an Agreement in Principle? What can I do?

First, do not panic and do not keep applying. You should speak to a broker and go through your credit report from any credit engine you may use, such as Experian or Equifax. Review it, as there may be an error or something you are unaware of. You should use your credit score to the best of your ability with the broker. They can analyse it and explain why you were declined with one lender and then help you find another lender who will take your situation into account.

What are the benefits of getting an AIP with a mortgage broker? How can a mortgage adviser help?

A mortgage broker will source the most suitable lender for you. By having a conversation with you and going through your credit report, bank statements, payslips, and SA302 forms, they can calculate the most suitable lender for you. They look at all the options to determine your best position, considering factors like rate incentives, time incentives, or schedule incentives, and will hopefully recommend the right lender for you. They help you get the right AIP, avoiding declines and the back and forth of trying to find an AIP that suits you on your own.

Summary

An Agreement in Principle is a key tool to have before going into the market, as it puts you ahead and makes you look like a serious investor or buyer. An AIP is a conditional statement of how much a lender may be willing to lend you. Affordability is primarily rental-based, not income-based, with lenders looking at the rental coverage (ICR) and a stress rate.

While an AIP is a soft credit check that normally does not affect your credit score, multiple soft checks can have an effect.

An AIP is not a guarantee and can still be declined if there is inaccurate information, a change in credit status, or if the property or rental income does not meet the final criteria. If you are declined, do not panic or keep applying; speak to a broker to review your credit report and find a suitable lender. A mortgage broker can help you by sourcing the most suitable lender for you, thus helping you get the right AIP without the back and forth.

Key Points

• An Agreement in Principle (AIP) is a conditional statement from a lender on how much they may be willing to lend.
• An AIP illustrates to estate agents and vendors that you can get the borrowing you have told them about.
• You can get an AIP directly from a high street lender or through a mortgage broker.
• You are legally free to choose your own broker and do not have to use one pushed by an estate agent.
• An AIP allows you to make an offer confidently, negotiate effectively, and compete with other buyers.
• The AIP process can often take place on the same day, sometimes even within minutes.
• Affordability is primarily rental-based (ICR and stress rate), not income-based.
• An AIP is not guaranteed, and a mortgage can still be declined due to property valuation, inaccurate information, or change in credit status.
• An AIP involves a soft credit check, but multiple soft checks can still affect your credit score.
• Bad credit does not rule you out, but it means you may need to use a lender other than a high street bank.

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.

For specialist tax advice, please refer to an accountant or tax specialist.