Construction Industry Scheme (CIS) mortgages are ideal for people in the construction sector, who might find it difficult to secure a competitive mortgage for any number of reasons:
- Trading for less than three years, and therefore don't have the minimum number of years accounts required by most mainstream lenders.
- Write off tax-deductible expenses, and therefore declare a lower net profit than their actual earnings which reduces the amount they can borrow.
CIS mortgage lenders understand this income structure and use the gross income as shown on your payslips to calculate your maximum borrowing limit, rather than relying on business accounts or self-assessment tax returns.
The Revolution Brokers team has created this guide to explain how to find a Construction Industry Scheme mortgage, how they work, and how to get the best rates.
For professional support with negotiating the best CIS mortgage terms, contact us on 0330 304 3040 or send us a message to email@example.com.
How do Construction Industry Scheme mortgages work?
A CIS mortgage isn't, in fact, a separate product, but is the term used for a standard mortgage that is adapted to the income structure of an applicant who works as a contractor or subcontractor and is enrolled in the CIS scheme.
The Construction Industry Scheme means that a proportion of your salary is deducted from your income by your contractor, and paid to HMRC as an instalment against tax and National Insurance contributions payable.
Lenders must know that you are enrolled in the CIS scheme, as this will impact the assessment process when analysing your income.
Can any CIS worker qualify for this sort of mortgage?
To apply for a CIS mortgage, you will need to have:
- CIS payslips for the last six months.
- Demonstrate that tax has been deducted by your contractor at the standard 20% rate.
- A minimum 5% deposit to put down on the property.
How complicated are mortgages for contractors and subcontractors?
If you are looking for a mortgage from a mainstream lender, it can be tough to secure a competitive mortgage as a contractor.
However, by working with a broker who is experienced in the sector, the process becomes much more manageable. Generally speaking, self-employed mortgages are more complicated as many sole traders will reduce their net profit by writing off tax-deductible expenses, before submitting their self-assessment tax return.
The impact is that you correctly reduce your tax obligations, but in turn, your accounts and tax returns reflect a lower income than your actual wages and therefore can restrict the amount you can borrow.
Using a mortgage lender familiar with the CIS scheme enables you to use the gross income figures as shown on your CIS payslips, hence needing six months worth of payslips to evidence your regular income.
Should your contractor deduct tax from your wages at a higher 30% rate, then you may also be asked to provide copies of your business accounts.
Which mortgage lenders can I apply to for a contractor mortgage?
As self-employment becomes more popular, you can find contractor mortgages with many banks and building societies. However, it is always worth consulting an experienced broker before making an application, as there may be much more favourable rates available from niche lenders who specialise in this sort of lending.
Particularly if you fall outside of the 'standard' eligibility criteria, a broker is almost sure to be able to find you a better deal - this could include:
- Having been trading for less than three years.
- Having a complicated income structure.
What is my maximum borrowing limit on a Construction Industry Scheme mortgage?
Most lenders familiar with CIS income will use an income calculation to decide how much they can lend you.
The relevant figure is called the 'value of measured work' - so let's take the below as an illustration of a monthly payslip:
Value of measured work
Less Tax Deducted 20%
In this example, the value of measured work is £4,275 - the gross amount earned. Mortgage providers will add up the value of measured work, usually over the last year, and then calculate the average to work out your annual income.
Most lenders can offer up to four times your annual earnings, although this all depends on other circumstances. If you have other obligations such as debts, loans or mortgages, then the monthly repayments will be deducted from your income before making this calculation.
Say this CIS contractor earned the same amount every month, then their annual income would be £51,300, and most lenders would offer a mortgage up to a maximum of £205,200.
Can I get a CIS mortgage if I have adverse credit?
It can be more challenging to find a competitive mortgage if you have bad credit, but using an expert broker means that you can access specialist bad credit lenders who will be happy to consider your application.
Provided you have no severe credit issues, and your credit history is free of defaults or CCJs over the last two years, you can still negotiate favourable rates.
Professional help with CIS mortgages
If you are a CIS contractor and have struggled to find a mortgage, or don't know where to start in finding a lender who will accept CIS applications, give the Revolution Finance Brokers team a call!
Our team is highly experienced in contractor mortgages and can provide bespoke advice about who to apply to, and what the most competitive mortgage is for you.
Call us on 0330 304 3040 or drop us a message at firstname.lastname@example.org.