, Property
You had an agreement in principle within ten minutes on a lender's website. The estate agent asked to see it before putting your offer forward, you sent the PDF, and the offer was accepted. Seven weeks later the valuer visits, the lender writes back offering £18,000 less than you need, and you find out what an agreement in principle actually was.
An agreement in principle is a lender's opinion of you, not of the property
An agreement in principle, also called a decision in principle, is an indicative statement that a lender would consider lending you roughly a stated amount, based on information you typed in and a credit check. Most lenders run a soft search at this stage, which does not affect your credit file, though some run a hard search, so ask.
It tells you nothing about the house. No valuation has been done. No underwriter has seen a payslip. Nothing has been verified beyond the credit reference agency data. It typically lasts between 30 and 90 days depending on the lender.
It is still worth having, for two reasons. It filters out the buyers whose income does not support the price, before they waste a month. And most estate agents in England and Wales will ask for one before presenting an offer to the seller, because the agent is judged on completed sales, not agreed ones.
The offer is the lender committing, and it comes after three checks
Between agreement and offer, a lender does the work.
First, affordability. Under the FCA's mortgage conduct of business rules a lender must assess whether you can afford the payments, including a stress test against a higher rate than the one you are paying. Your actual outgoings matter here in a way they do not at agreement in principle stage: childcare, car finance, credit commitments, and for the self-employed, the profit figures on your accounts and tax calculations rather than the turnover you mentioned.
For a buy-to-let, affordability is assessed differently. Lenders test the rent against the mortgage interest using an interest cover ratio, commonly 125% for a basic rate taxpayer and 145% for a higher rate taxpayer, stressed at a notional rate that is usually well above the pay rate. The Prudential Regulation Authority's underwriting expectations also require extra scrutiny for portfolio landlords, generally defined as those with four or more mortgaged buy-to-let properties, which means the whole portfolio is assessed and not just the property you are buying.
Second, identity and source of funds. Where the deposit came from, evidenced. Gifts need a letter and often evidence of the giver's own funds.
Third, the property. This is the one buyers ignore.
The valuation is the lender's, not yours, and a down-valuation is not negotiable
A mortgage valuation is a short inspection carried out for the lender to decide whether the property is adequate security. You usually pay for it. You do not always get to read it in full. It is not a survey and it is not advice to you.
If the valuer says the property is worth less than the agreed price, the lender lends against the lower figure. At 75% loan to value, a £15,000 down-valuation costs you £11,250 of extra cash on the day, or a renegotiated price, or the deal. Lenders will consider a challenge if you can supply comparable evidence of recent sold prices for genuinely similar properties, but the bar is high and most challenges fail.
Separately, and at your own expense, you can commission your own survey. The RICS Home Survey standard sets out the levels: a Level 2 survey for a conventional property in reasonable condition, a Level 3 building survey for older, altered or unusual properties. A Level 3 on a Victorian terrace costs several hundred pounds and routinely finds something worth more than that in renegotiation, or worth more than that in walking away. Buyers who spend £60,000 on a deposit and nothing at all on a survey are making a calculated decision, and they are usually calculating badly.
There is also the retention. A lender may offer, but hold back part of the advance until specified works are completed, typically for damp, a roof or structural movement. A retention does not reduce what you owe. It just means you have to fund the work from your own money before you can draw the rest.
The offer has a shelf life, and so does the chain behind you
A formal mortgage offer is usually valid for a set period, often three to six months from issue. That period is the practical deadline for the transaction. Chains in England and Wales routinely run past it, and an extension is at the lender's discretion and may trigger a re-check of your circumstances at the rate then available.
Which brings in the timing problem. In England and Wales neither side is committed until exchange of contracts. Until then the seller can accept a higher offer from someone else and you can walk away, and neither party owes the other anything beyond wasted fees. Everything before exchange is preparation. Scotland works differently: offers and acceptances form binding missives much earlier in the process, which is why Scottish transactions fall through less often and why a mortgage timeline north of the border needs different planning.
The sequence that causes the most damage is this. You get an offer in week eight. The person above you in the chain has not yet had their own valuation. Their lender down-values in week twelve. They cannot proceed. Your offer is still valid but there is nothing to complete on, and by the time a replacement is found your offer has weeks left and your rate has expired. You did everything correctly and lost the purchase anyway, because a mortgage offer only covers your link of the chain.
What to do with this
Get the agreement in principle early, treat it as a filter and not a promise. Apply for the mortgage the day the offer is accepted rather than waiting for the survey, because the valuation is on the lender's timetable and you want it early enough to renegotiate. Commission your own survey at the level the building deserves. And know your own walk-away price before the valuer visits, because you will be asked to decide quickly, at the worst possible moment, with money already spent.
Where this shows up in the game
Estate agency and property both arrive in Business Baron with the Property & Construction Track, an add-on to the full game. Buying is a negotiation rather than a button: a listing has a hidden reserve, a reason for selling and rival bidders the agent exaggerates, and cash, no chain and a quick completion are all worth money off. Having your finance settled before you offer is what lets you use them.