An agreement in principle is a lender's conditional indication of how much it might lend, based on an initial check of income and credit. It is not a binding mortgage offer, but it helps a buyer show sellers that finance is realistic.
In one line: An agreement in principle is a lender's early, non-binding estimate of how much it might lend.
How an agreement in principle works
It follows a check of income, outgoings and credit history, often using a soft search that does not affect the credit file. The figure is indicative and subject to full underwriting later.
A buyer earning 40,000 GBP might receive an agreement in principle for around 180,000 GBP. Once an offer is accepted, a full application with documents and a property valuation is needed before a formal mortgage offer is issued.
An agreement in principle typically lasts a set period, often 30 to 90 days, and can be renewed if house hunting takes longer.
An agreement in principle vs a mortgage offer
An agreement in principle is an early estimate with no commitment from either side. A mortgage offer is the firm, underwritten decision made after a full application and valuation.
Sellers and estate agents often ask to see one before accepting an offer.
Primary source: FCA: Mortgages and home finance