Buy To Let Agreement in Principle
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Buy To Let Agreement in Principle
Matt Coulson explains how an Agreement in Principle for a Buy to Let mortgage works.
What do we need to know about the UK Buy to Let market?
As of 2024, according to HMRC, there are over 2.8 million Buy to Let landlords in the UK, which is quite a big number.
From a business perspective, which is how most landlords view their portfolio, the average gross yield for a UK Buy to Let is currently 5.25%. There are some regional hotspots, like the northeast of England, where yields can exceed 8%.
UK Finance information suggests that 56% of Buy to Let mortgages start with an Agreement in Principle (AIP). Also, over 70% of offers are accepted faster when an AIP is in place.
I’m not sure how that was measured, but that was the information I found.
On the flip side of that, one in five Buy to Let AIPs are declined, typically due to poor credit or inaccurate information. That really highlights the value of advice. If you aren’t getting advice early on there’s a 20% chance that that AIP will be declined.
What is an Agreement in Principle and why do I need one for a Buy to Let?
An Agreement in Principle can also be called a Decision in Principle (DIP) or a Mortgage in Principle (MIP). They’re all the same thing. In essence, they are a conditional offer from a lender.
The important thing is that it’s all based on disclosure from you as the client via your mortgage broker. Based on that information, the lender will confirm whether they can give you the loan amount you require for your proposed purchase.
For Buy to Let, there are three main reasons why an Agreement in Principle is useful for you.
Firstly, it shows you’re serious. A lot of people harbour ideas to build a property portfolio. It’s quite aspirational in the UK – we’ve all got an obsession with buying property.
An AIP shows an estate agent that you are credible, you’re serious and you’ve taken some action. You’re not just daydreaming about what might be possible.
Secondly, it helps you define your budget early in that process. It sets the limit for what you can borrow and what you can buy. It also allows you to move more quickly. That’s something people often want to prioritise – because if a property has multiple potential buyers, it’s not always the highest offer that wins.
Of course, it plays a big part. But don’t underestimate that ability to move quickly. It can really motivate vendors.
How do I get an Agreement in Principle for a Buy to Let mortgage?
Speak to a mortgage broker like Heron Financial. There are lots of good brokers out there that aren’t tied to one product set.
Ultimately, if you go and talk to a single lender they can only offer you their own products, while a broker can give you a much broader view of the market. It will often cost you nothing to have a conversation with a broker, and at Heron we don’t charge any fees at all for our services. Have a chat and get an idea of what’s possible with different lenders.
You’ll then need to provide some basic information like your income, debts and credit profile. We have an Experian integration built into our software, which gives us a view of your credit profile very early on in the process. That’s very helpful.
You’ll probably need to know a bit about the property, as well. Is it a house or an apartment? Will it be occupied by multiple different people or a single family? What are your rental expectations?
Full disclosure of your situation is important for your broker for a good starting point on advising what mortgages will work for you. We look for suitable lenders, find the most appropriate rate for the borrowing you want, and then make that AIP application for you. That could all happen on the same day.
Can I make an offer on a Buy to Let property with an Agreement in Principle?
Yes, and having an AIP in place really strengthens an offer. We often help clients with preparation. You’ve got your AIP in place. You understand who might be acting for you in a legal capacity. You have the deposit ready.
An estate agent selling property usually wants to see that a buyer is prepared – that strengthens an offer. It’s not always the highest price that wins the day. It can be the person that’s the most organised and able to move quickly.
Having an AIP is relatively low effort, and it is a demonstration of intent, so that’s a really good place to start.
How do I apply for an AIP for a Buy to Let and how long does this take?
It’s a few hours, and from a broker’s perspective, when a client has all the information to hand it’s so helpful. If you can go into that conversation with details and potentially documents too, that will bring the time down. A few hours is a reasonable assumption.
The AIP decision can be instant. You can have an appointment with us and upload documents to our portal whilst the conversation’s happening. And within five or 10 minutes you could have an AIP, if everything is to hand.
In a more complex case, perhaps with foreign income involved or for a portfolio landlord, it can take a little longer. Even then, we normally have a view on the most appropriate lender for those situations.
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What information or documents do I need to get an Agreement in Principle for a Buy to Let mortgage?
First is your ID – a passport or a driving licence. We’d need to see the proof of deposit with a savings account statement, for example. Perhaps you’re selling another property, in which case it could be documentation relating to that sale.
Your proof of income is really important. For an employed person, that’s typically recent payslips. For a self-employed person, it could be your SA302s or your company accounts, depending on your business structure.
Any existing mortgage statements are helpful, particularly if you’re a portfolio landlord. That gives us up-to-date balances. Also important is the expected rental income, which can come from an estate agent as an estimate. If you have all of those in preparation for your conversation, you’ll be in a strong place to get that Agreement in Principle.
How is affordability calculated for a Buy to Let mortgage Agreement in Principle?
It’s similar to a regular residential mortgage, in that lenders do it in different ways. It depends on their attitude to risk and the sort of applicant they are targeting.
Lenders always apply a rental stress test. First-time landlords often ask us if it’s enough for the rent they are expecting to cover the mortgage. It makes sense, theoretically, but that’s not how lenders assess it. Lenders apply a stress test to that and normally look for the rent to cover 125% to 145% of the mortgage interest at a ‘notional’ rate.
That notional interest rate is usually higher than rates currently available on the market. They are trying to build in a buffer to protect you if interest rates went up, as they have in recent years [podcast recorded in August 2025].
If your rent only just covers the mortgage payment, there’s no room to manoeuvre if rates go up, for example, or if your tenant leaves and the next one doesn’t pay as much.
Lenders potentially look at your own personal income as a safeguard, checking that you have a salary in the background. They want to ensure there’s sufficient disposable income to help you cover a shortfall.
A good broker who’s experienced in Buy to Let will know straight away where you will fit in terms of affordability and which lender will be most suitable for you.
Is an Agreement in Principle guaranteed? Can my Buy to Let mortgage be declined after this?
Any Agreement in Principle is always conditional. It’s not a formal mortgage offer. When a lender issues an AIP certificate, they haven’t seen many of your documents.
Your advisor may have checked your income and bank statements, your ID, etc., but the lender doesn’t assess those things at the AIP stage. It’s always conditional, and it’s seen as a stepping stone towards a full mortgage offer.
Sometimes they run a slightly different credit score mechanism at AIP stage, which may not pick up adverse credit, for example. There could be valuation issues once you’ve found a property. There could be changes in lender criteria or products available between doing your AIP and making a full mortgage application.
Will I need a credit check for a Buy to Let AIP? How does this affect credit score?
Most AIPs involve a soft credit check – a credit search that doesn’t necessarily impact your score. They look at your credit score without putting a hard footprint on it.
A hard credit check does impact score. Too many hard credit checks, which can happen at the full mortgage application stage, can bring your score down.
But most AIPs just involve a soft check. Some lenders do run hard checks at the AIP stage, but a good broker will guide you through that.
How will bad credit affect an Agreement in Principle?
It can create challenges with certain lenders, as some really want near-perfect credit. They’re quite particular in the type of applicant that they want to offer mortgages to.
It might therefore mean that your lender choice is reduced – and that’s the case with any mortgage. If you have adverse credit on your file, the best thing to do is share that with your mortgage broker before you start making applications.
I’ve been declined an Agreement in Principle. What can I do?
Don’t panic, first of all. Lenders differ wildly in credit criteria, so if one says no, it doesn’t mean they will all follow suit.
A good broker should be able to identify what went wrong and why that particular lender said no – we then rework the application for a better fit. There might well be another option.
What are the benefits of getting an Agreement in Principle with a mortgage broker? How can a mortgage advisor help?
Just to reiterate, getting advice early is really key here. If you have credit issues or you’re unsure about the rent you can achieve – or anything else I’ve discussed today, we will steer you towards the right lender.
It prevents random applications going in where they shouldn’t and impacting your credit score. We make the whole process less stressful. We guide you through. Come prepared with all the information and ideally the documents I mentioned, and it should be plain sailing from there.
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.