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If you’re a Construction Industry Scheme (CIS) subcontractor, getting a mortgage can be difficult as your income may not be as steady and consistent as someone in full-time employment. However, there are lenders out there who will say ‘Yes’ to CIS- and we know just which lenders to approach!
What is a CIS mortgage?
Generally speaking, when it comes to getting a mortgage, there are two types of borrowers that lenders consider when it comes to the application.
You work or a company and receive a salary. You are taxed via the PAYE scheme.
You work for yourself, chose your own working patterns and hours and pay your own taxes by completing your annual self-assessment tax return.
The CIS Scheme is unique as it sits between both the employed and self-employed options.
As a CIS worker, in the eyes of HMRC, you are self-employed and responsible for filing your own self-assessment tax returns. However, where a CIS mortgage is concerned, a lender can use your gross income to calculate your affordability rather than using your self-assessment tax figures. This can enable you the potential to borrow significantly more.
Do I qualify for the CIS mortgage?
Do you work for a construction firm that deducts 20% of your salary for tax, or are you self-employed and working in the construction industry? If the answer is yes, you are paid through the CIS.
What does construction work include for the purpose of CIS?
The type of work included can be found on the the Government Website:
• Preparing the site – for example, laying foundations and providing access works.
• Demolition and dismantling.
• Building work.
• Alterations, repairs and decorating.
• Installing systems for heating, lighting, power, water and ventilation.
• Cleaning the inside of buildings after construction work.
Details of the CIS scheme are detailed here.
How will the lender assess my income as a CIS subby?
Most lenders will use net profit after tax to calculate your income and this can cause a real problem for CIS workers. However, we know which lenders are familiar with the CIS scheme and are happy to calculate how much you can borrow based on your day rate, rather than profit after expenses.
As long as you have 3 months worth of continuous payments and a good credit history, we can use your average day rate for affordability. If you have minor blips in your credit history or haven’t yet completed your first tax return, you may still be eligible.
CIS Contracting for less than a year?
If you’ve only recently become a CIS subby, you may still have mortgage options. Whilst the majority of high street lender would request 2 or 3 years of accounts, there are lenders out there who may still be happy to lend and we know which ones to approach.
Can I still get a CIS mortgage with bad credit?
As a CIS subby, you may be able to get a mortgage even if you have a poor credit such as a small CCJ or a historical default. It is important that you obtain a copy of your credit file early on in the mortgage process. so that your adviser is aware and can present the case to the right lender.
How much can I borrow as a CIS contractor?
The amount you are able to borrow will differ from one lender to another. Generally speaking, the average of your gross earnings over the last 3-6 months (pre 20% CIS deductions) is annualised to give an indication of a your annual earnings. If you then multiply this figure by 4.5 it will give you a rough idea of what you can borrow. (e.g. loans and credit cards), credit profile and the loan term.
Gross annual income = £60,000
Multiplied by 4.5 = £270,000 maximum potential mortgage
However, the amount you can borrow will also be determined by factors such as your credit commitments (e.g. loans, credit cards, car finance, school fees, maintenance payments) and credit profile (e.g.you may not be able to borrow as much if you have a bad credit history).
How much deposit do I need for a CIS mortgage?
In some circumstances, you may qualify for a mortgage with a deposit as low as 5%. However, many lenders will require at least 10% deposit and the higher the deposit, the better the rates you’ll have access to.
Can I get a mortgage if I’ve been a CIS contractor for less than a year?
If you have only recently become a CIS contractor, getting a mortgage on the high street may prove very difficult as the majority of lenders will want to see you with a continuous employment record of at least 12 months.
However, there are lenders out there who will still lend with less than one year’s history. Here at The Mortgage Masters, we understand how your income works and know just which lenders to approach.
Do I need to have completed at least one self-assessment tax return in order to get a mortgage?
You don’t need to have completed your first year’s self-assessment tax return so long as you have your CIS payslips.
Do I need an accountant?
You do not require an accountant if the lenders are happy to accept your payslips as proof of income.