What is an Approval in Principle?
Bridging Finance from £75,000 up to £25 million
Industry expert Mark Thomas explains what is an approval in principle for bridging finance in the UK?
What is an Approval in Principle?
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What is an Approval in Principle?
What is an Approval in Principle?: Bridging Finance?
Key Features of an Approval in Principle:
Preliminary Assessment. The lender reviews basic details about:
- The property being purchased or refinanced (security).
- Your exit strategy (how you plan to repay the bridging loan, e.g., selling a property or arranging long-term finance like a mortgage).
- Your financial situation, including creditworthiness and affordability.
- This usually involves a soft credit check, which does not affect your credit score.
Non-Binding
The approval is not legally binding for either party. The lender can still decline the application later if:
- The property valuation is lower than expected.
- Your exit strategy isn’t solid.
- Issues arise during due diligence (e.g., legal complications, title problems).
Speed and Confidence
Bridging finance is often time-sensitive, especially when buying a property at auction or meeting a tight completion deadline. An AIP gives you confidence to move forward, knowing that funding is likely to be available, subject to full underwriting.
Indicative Terms Provided. The lender will typically outline:
- Maximum loan amount they may be willing to lend.
- Interest rate and fees.
- Loan-to-value (LTV) ratio.
- Expected repayment timeline.
Typical Process:
Initial Enquiry – You provide basic details about the property, loan amount needed, and repayment plan.
AIP Issued – The lender gives a provisional agreement with indicative terms.
Full Application & Due Diligence – Includes valuation, legal checks, and proof of exit strategy.
Formal Offer – Once checks are complete, the lender issues a binding offer and releases funds.
Why It Matters in Bridging Finance
- Gives sellers confidence you are a serious buyer.
- Speeds up property deals, especially in competitive or auction environments.
- Helps you plan costs since you’ll know indicative rates and fees early on.
An Approval in Principle (AIP) in bridging finance is a vital first step for anyone seeking short-term funding. It provides a preliminary confirmation from a lender that, based on the information supplied, they are likely to approve your bridging loan. While not legally binding, it offers a clear understanding of the potential loan amount, interest rates, and terms, giving you the confidence to move forward with property purchases or refinancing plans. This is especially valuable in time-sensitive situations, such as buying at auction or preventing a property chain collapse.
However, an AIP is only the start of the process. Final approval depends on property valuation, legal checks, and a robust exit strategy to repay the loan. By securing an AIP early, you can streamline negotiations, demonstrate serious intent to sellers, and improve your chances of completing quickly and successfully in the competitive property market.