Construction Industry Scheme Mortgages
The Construction Industry Scheme (CIS) was set up by HM Revenue & Customs to allow registered contractors to deduct money at source from the payments they make to subcontractors. The amount deducted goes to HMRC and is counted as an advance payment towards the amount of income tax and National Insurance that the subcontractor will be expected to pay after filing accounts. Payslips showing gross and net income are typically provided by the contractor
Subcontractors are not obliged to register for CIS, but if they do not, deductions are made at a higher rate – that is, 30% rather than 20%. The government’s CIS guide for contractors and subcontractors has more detail on what is and is not covered by the scheme. Please note, the information on this page is up to date as of July 2017.
Not all lenders offer CIS scheme mortgages, and those that do may have different lending criteria. Typically, however, CIS scheme mortgages allow subcontractors to prove income using the gross amount shown on the payslips they receive from contractors, rather than having to provide business accounts or a SA302, which shows the year-end tax calculation from a Self Assessment tax return. This can be advantageous for applicants with less than two years’ worth of accounts to show.
Rather than a “one-size-fits-all” assessment criteria, CIS lenders generally assess applicants on a case-by-case basis. Having said that, there are broad criteria that will need to be met. Generally, to qualify for a CIS scheme mortgage you can expect to be asked to provide your CIS payslips for at least the last three months, although up to six may be required or more in some circumstances. They will be used to calculate an average monthly income, from which an annual income figure will be worked out. You may generally also need to provide bank account statements for the same period of time.
How much can you borrow for a CIS mortgage?
Lenders will usually take an average of the earnings shown on your previous three to six months of payslips to calculate your annual income. They will then offer to lend an amount in line with their own criteria, which is commonly in the range of four to five times that amount. This varies from lender to lender; an expert mortgage broker will be able to advise you on different lenders’ criteria. As with all mortgages, the application will be subject to affordability testing based on the calculated income figure.
What Deposit is Needed for a CIS Mortgage?
Aim to have a minimum of 10%, but 5% is also on occasion possible and bear in mind that as with any borrower, the greater the sized deposit the greater potential to access better rates.
How do I Qualify For a CIS Mortgage?
Provided a subcontractor is registered for the CIS scheme, lenders will generally accept payslips as proof of income.
If a subcontractor is not registered – meaning tax will be deducted at 30% rather than 20% – they should expect to be asked to provide at least one year’s accounts or an SA302, and for the declared figure to be used in the mortgage calculation.
Traditionally, self-employed people have needed to produce two or three years’ accounts in order to be considered for a mortgage, but now some lenders will accept just twelve months.
People on contract are generally required to be able to show twelve months of continuous employment, with six months of their contract remaining, or else to be able to demonstrate two years’ service in the same type of employment. (Most lenders accept that contract workers may have gaps in their employment, either because they were between contracts or took a holiday.)
Over a quarter of workers in the UK are now self-employed or on a contract, which is leading many lenders to reconsider their previous, rather inflexible stance on lending to this type of worker. Working patterns are changing and lenders are having to adapt in order to accommodate the trend.
Can I get a CIS Mortgage with Bad Credit?
CIS mortgages are a specialist area of lending and not all lenders have mortgage products available. Couple that with bad credit, and the pool of lenders shrinks even further. That said, at Just Mortgage Brokers we have access to a number of specialist lenders that are willing to look at CIS mortgages with bad credit. These lenders will assess each case on its own merit and can even take into account the gross figure that shows on your CIS payslip.
Mortgage Advice for CIS Workers
Acquiring a mortgage as a CIS worker needn’t be too difficult a task. At Just Mortgage Brokers, we have a specialist mortgage team that understands the market inside out and knows exactly where to turn to find the best deals. With unlimited access to the market and exclusive rates that are not available on the high street, we can help you find the right CIS scheme mortgage deal. We can also help you with your mortgage application and provide you with personalised specialist mortgage advice.
If you are a CIS worker and are looking to obtain a mortgage, speak to Just Mortgage Brokers today for free initial advice and no-obligation quotes.