Navigating the mortgage landscape as a contractor or subcontractor in the construction industry can be complex. The Construction Industry Scheme (CIS) offers a unique pathway tailored to your financial situation. This guide provides a detailed understanding of CIS mortgages, explaining the benefits, eligibility criteria, and the process of applying.
Understanding CIS Mortgages
Getting a mortgage when you are part of the Construction Industry Scheme (CIS) involves some unique considerations. Here’s everything you should know:
What is the Construction Industry Scheme (CIS)?
HMRC established the Construction Industry Scheme (CIS) to regulate contractor/subcontractor relationships within the construction industry. Registered contractors are mandated to take steps such as deducting money from subcontractors’ payments in order to pay income tax and National Insurance on them. This scheme ensures that taxes are collected at the source, making it easier for CIS workers to manage their financial obligations.
The Misconception of ‘CIS Mortgages’
A CIS mortgage isn’t an official product offered by mortgage lenders. The term is used when applicants apply for a mortgage via the CIS scheme, but they can still apply for the same mortgage products as others. This terminology has become common in the industry, but it’s essential to understand that CIS mortgages are not a separate category of mortgage products.
Eligibility and Benefits of CIS Mortgages
Understanding the eligibility criteria and benefits of CIS friendly mortgages can help you make an informed decision. Here’s what you should consider:
Can a CIS Worker Get a Mortgage?
Anybody can get a mortgage, provided they meet the income requirements set by lenders. But if you want to get a CIS mortgage, you need to be registered with the Construction Industry Scheme.
Not all mortgage lenders offer Construction Industry Scheme mortgages, so if you are a part of the scheme, we recommend our services to you. We know which lenders offer CIS mortgages so can compare their products to ensure you get the very best deal.
If you’re a self-employed CIS worker, understanding your mortgage options can be more complex. Explore our self-employed mortgage guide for detailed insights tailored to the needs of self-employed individuals, including those in the construction industry.
Benefits of Registering for CIS
Registering for the CIS scheme has several advantages, including reduced deductions and increased borrowing ability. By registering, your deductions will be calculated at 20% instead of 30%, reducing your payments to HMRC. This can be beneficial when applying for a mortgage, as lenders will calculate your affordability using your gross income.
General Eligibility Criteria
Eligibility criteria include CIS payslips, deposit size, age, and credit history. Some lenders may require 3 months of payslips, while others may need more. A larger down payment may qualify you for better mortgage rates, and a good credit score will give you access to better deals.
Understanding Gross and Net Income in CIS Mortgages
In the context of CIS mortgages, understanding the difference between gross and net income is crucial. These terms are often used by mortgage lenders to assess applicants’ eligibility and borrowing capacity.
- Gross Income: Gross income refers to the total income earned by a CIS worker before any deductions, such as income tax, National Insurance, and other withholdings. In the case of CIS mortgages, most lenders consider the gross income when calculating how much an applicant can borrow. This approach can be advantageous for CIS workers, as it may allow them to qualify for a higher mortgage amount.
- Net Income: Net income, on the other hand, is the income remaining after all deductions have been made. For many lenders, especially those not familiar with the CIS scheme, net income is the basis for mortgage calculations. However, for CIS workers, net income may not accurately reflect their true earning potential, as it doesn’t include the money deducted for advance payments towards income tax and National Insurance.
Why Gross and Net Income Matter in CIS Mortgages
The distinction between gross and net income is vital for CIS workers seeking a mortgage. Since CIS mortgage lenders use gross income figures when assessing an applicant’s annual income, this often allows CIS workers to borrow more than they would have otherwise. Understanding these terms and how they impact mortgage calculations can help CIS workers find the right mortgage deal and navigate the application process more effectively.
By focusing on gross income rather than net income, CIS mortgage providers recogniSe the unique financial landscape of the construction industry and provide a tailored approach to mortgage lending for CIS workers.
How Do CIS Mortgages Work?
CIS mortgages operate differently from traditional mortgages, especially in how they assess income. Here’s how they work:
Assessing Income Differently
CIS mortgage lenders consider income differently from traditional lenders. Instead of basing affordability on net income, they use gross income figures. This approach often allows applicants to borrow more than they would have been able to otherwise, as it takes into account the total money received from the business rather than just the net profit.
How Much Mortgage Can I Get CIS?
Mortgage providers typically offer mortgages based on 4 – 4.5 times the gross income, but some may go up to 6 x the average annual income for higher salaries. Factors such as your outgoings, credit history and deposit size all play an integral role in determining how much of a loan you can obtain from lenders. Your lender will also factor in bills, credit card monthly payments and general spending habits in their decision on how much to offer you as financing.
How Much Could You Borrow with a CIS Mortgage?
Estimating how much you could borrow through a CIS mortgage doesn’t have to be a guessing game. With our CIS Mortgage Affordability Calculator, you can get a clear picture of your borrowing potential.
CIS Mortgage Affordability Calculator
No matter whether you work as an employed or self-employed contractor, our calculator can give an accurate estimation of how much of a loan you qualify for. Simply choose your trading style, enter the information regarding your income source and let our calculator do its magic!
This tool can serve as an essential first step on your mortgage journey, giving an accurate depiction of your options and borrowing capacity. By understanding your borrowing potential and approaching lenders confidently, you’ll find one that best meets your individual financial situation.
How to Get a Mortgage as a CIS Contractor
Securing a mortgage as a CIS contractor involves several key steps. Here’s a step-by-step guide:
- Register for the Construction Industry Scheme: You must have been paid through the scheme for at least 12 months.
- Find the Right Lender: Speak to a specialist mortgage broker who knows about CIS mortgages.
- Gather Your Paperwork: You’ll need 3-6 months’ payslips, recent bank statements, proof of ID, and proof of address. Unlike other self-employed applicants, you won’t need to provide a full set of business accounts if you’re CIS registered.
- Improve Your Credit Score: Take steps to enhance your credit rating if needed. Challenging inaccuracies on your report, paying bills on time, avoiding multiple applications for credit, and getting a credit-building card can help.
- Speak to a Mortgage Broker Specialising in CIS Mortgages: They can guide you through the process and help you find the best deal.
CIS Mortgage Lenders: Who Will Consider Your Application?
Not all lenders offer CIS mortgages therefore Choosing the right lender is a crucial step in securing a CIS mortgage. Most lenders look at each mortgage application on a case by case basis. Here’s what you need to know:
Mainstream and Specialist Lenders
Both mainstream lenders like Halifax, Barclays, and NatWest, and specialist lenders offer mortgages to CIS workers. While many lenders in the mortgage market may provide standard mortgage products, specialist mortgage brokers may have access to lenders that specifically cater to the needs of CIS workers. It’s essential to seek mortgage advice from a CIS mortgage expert to find the right mortgage deal for your situation.
What If You Have Bad Credit?
Having a poor credit history doesn’t necessarily preclude you from getting a CIS mortgage. While a bad credit history might limit your options, specialist lenders may still consider your application. Improving your credit score should be a priority, but if you have bad credit, there may still be mortgage deals available to you.
What does CIS mean in mortgage?
CIS stands for Construction Industry Scheme. In the context of mortgages, it refers to a pathway for contractors and subcontractors in the construction industry to apply for a mortgage. Lenders consider gross income rather than net income, often allowing for higher borrowing amounts.
Is it hard to get a mortgage on CIS?
Obtaining a CIS mortgage is not necessarily hard, but it requires understanding specific criteria. Working with a broker who specialises in CIS mortgages can simplify the process, and being registered with the CIS scheme may enhance eligibility.
How is a CIS mortgage calculated?
A CIS mortgage is calculated based on the applicant's gross income rather than net income. Lenders typically use income multiples, often 4 - 4.5 times the gross income, and consider other factors like credit history and deposit size to determine the borrowing amount.
Can subcontractors get a mortgage?
Yes, subcontractors can get a mortgage. If registered with the CIS scheme, they may only need to show payslips as proof of income. Those not registered may need to provide full business accounts or an SA302 from their Self-assessment tax return.
How to get a mortgage 5 times your salary?
Getting a mortgage 5 times your salary requires a strong financial profile. Lenders will consider factors like a stable income, good credit history, low debt-to-income ratio, and a higher mortgage deposit. Some lenders may offer higher income multiples for applicants with higher salaries.
How much mortgage can I get being self-employed?
Self-employed individuals can obtain a mortgage based on their net profit or salary plus dividends. Lenders typically require 2-3 years of accounts or tax returns. The amount may vary depending on the lender's criteria, credit score, deposit size, and other financial factors.
CIS mortgages offer a unique opportunity for contractors and subcontractors in the construction industry. Understanding how CIS friendly mortgages work and registering for the scheme as well as working with an experienced broker are essential steps toward finding a loan tailored specifically to your needs.
No matter whether you operate as an independent trader or subcontractor, the Construction Industry Scheme (CIS) offers a path towards homeownership tailored to the unique financial environment of construction industry businesses. From understanding gross and net income to navigating the offerings of specialist lenders, this guide has covered the essential aspects of CIS mortgages.
For personalised assistance, get in touch with our team at 033 0088 4407, or use the contact form below. Our CIS mortgage experts are here to help you navigate the process and secure the best deal for your situation.
Speak to a CIS mortgage expert today, and let us guide you towards your dream home.