23 Jun Educating Estate Agents
Over the years I’ve dealt with some superb estate agents as well as some pretty awful ones, but my biggest bugbear has always been their irrational obsession with Agreements in Principle.
As a responsible financial adviser and particularly since the recent changes in regulation (MMR 2014) it’s often not best advice to carry out an agreement in principle with a specific lender until the applicants have a property in mind and are ready to move forward with their purchase imminently.
An agreement in principle (AIP, Mortgage Promise, DIP) is just a credit score with a specific bank. At this point the lender hasn’t verified income or deposit, they’ve simply carried out a credit score – the same as you might have for a mobile phone.
There are 2 main issues with obtaining AIPs prematurely:
- The mortgage product market moves rapidly. The best option and lender for the client could easily change on a daily or weekly basis and if an AIP is carried out every time the best option changes the applicant is likely to fail credit score due to multiple searches and the AIP becomes counter productive.
- An AIP is an acceptance for a snapshot in time and not for a specific property. Lenders now work based on affordability so the property type, council tax amount, ground rent and service charges will all have an impact on their decision. For example, you could get an agreement in principle for a house at £300,000 but you may well get declined if you then purchase a flat for £250,000 because there are service charges of £250 per month. So what’s the point in the AIP?!
I understand that the negotiator has to protect their vendor but there really are better ways to do this. Pick up the phone to the broker the purchaser is using and verify whether the prospective buyer is good for the money. We’re FCA regulated professionals and it’s not in the clients interest, the brokers interest or the vendors interest to lie about whether the mortgage is likely to be agreed.
If the agent (or vendor) still feels an AIP is essential, give the purchaser and broker some time! Putting together an AIP in a post Mortgage Market Review (MMR) market is not a 5 minute job, To ensure it’s accurate the broker will need a comprehensive budget planner, up to date payslips and details of the property in question including council tax band and ground rent and service charges – which ironically estate agents don’t always have readily available.
We’ve built some fantastic relationships with estate agents over the years and they now see the benefit of picking up the phone to a broker and having faith in them rather than being insistent on an AIP.
It’s time for the process to change, estate agents need to stop demanding AIPs!