CIS Mortgages

The construction sector offers numerous opportunities, but when it comes to financing, the unique payment structures often make it challenging for workers to secure a mortgage. However, a solution comes in the form of Construction Industry Scheme (CIS) mortgages, designed specifically for individuals in this sector. CIS mortgages are tailored products that consider the specific income circumstances of subcontractors working in the UK construction industry. Rather than focusing on net income (income after tax), these mortgages allow lenders to base their calculations on gross income (income before tax), which is typically higher. This unique approach provides a more realistic assessment of affordability and can potentially allow construction workers to borrow more than they might with a traditional mortgage.

Whether you’re a seasoned construction veteran or a newcomer to the industry, understanding the specifics of CIS mortgages can open doors to homeownership. With this type of mortgage, your hard work in the construction field can become the foundation of your dream home. Let’s dive deeper into the world of Construction Industry Scheme mortgages and how they can pave the way to property ownership for those in the construction industry.

What is a CIS mortgage?

There isn’t a specific “CIS mortgage product” as such. When we refer to a Construction Industry Scheme (CIS) mortgage, it’s generally about how mortgage lenders approach applications from individuals who work as subcontractors within the UK’s Construction Industry Scheme.

The Construction Industry Scheme is a tax deduction scheme that involves tax being deducted at source by contractors. The unique nature of this scheme can make it more challenging for these subcontractors to secure a traditional mortgage, as their net income (income after tax) can appear lower due to this method of taxation.

In light of this, some mortgage lenders, especially those who specialise in self-employed or contractor mortgages, have adapted their affordability assessments to consider the gross income (income before tax) of CIS subcontractors, which is typically higher than their net income. This could potentially enable these subcontractors to borrow more than they could with a standard mortgage.

So, while there isn’t an official mortgage product labelled as a “CIS mortgage,” the term is used to describe this approach to handling mortgage applications from CIS subcontractors. As always, the exact criteria and process can vary between different lenders, and it’s a good idea to seek advice from a mortgage advisor or broker to understand the options available.

How do CIS mortgages work?

Construction Industry Scheme (CIS) mortgages work by taking into account the gross income of a subcontractor rather than just their net income or their income after tax. This can allow subcontractors to borrow more than they could with a traditional mortgage.

Here is a step-by-step guide to how a CIS mortgage works:

Income Assessment: The most significant aspect of a CIS mortgage is the income assessment. Instead of using the net income figure shown on your tax calculations or payslips, lenders use the gross income, before the 20% tax is deducted. This gives a more accurate representation of your earning capability and can substantially increase the amount you can borrow.

Apply for a Mortgage: Once you’ve established your gross income, you can apply for the mortgage either directly with a lender or through a mortgage broker. Not all lenders offer CIS mortgages, so it may be beneficial to use a broker who specialises in this area and can guide you to the most suitable lender.

Document Verification: The lender will typically ask for proof of your income. This might be your payslips showing the tax deducted at source, your invoices or bank statements showing the income received, and potentially your HMRC tax calculations or tax year overview.

Affordability Check: The lender will also conduct an affordability check. This considers your income against your regular expenses to determine if you can afford the mortgage repayments.

Property Valuation: Once you’ve passed the income and affordability checks, the lender will want to value the property to ensure it is worth the amount you want to borrow.

Mortgage Offer: If everything checks out, the lender will offer you the mortgage. This will detail how much they are willing to lend, the interest rate, and the term of the mortgage.

Completion: Once you accept the offer, the lender will provide the funds for the purchase. You’ll start making your mortgage repayments as agreed.

Can a CIS worker get mortgages?

Yes, a Construction Industry Scheme (CIS) worker can get a mortgage. However, getting a mortgage may be more challenging for CIS workers compared to employees with a fixed salary due to the variable nature of their income.

The main difficulty arises because many traditional lenders consider only net income (income after tax) for mortgage assessments. Under the CIS, contractors deduct 20% from a subcontractor’s pay and pass it on to HM Revenue and Customs (HMRC). This means that the net income of a CIS worker can appear much lower than their actual earnings, which can limit the amount they can borrow.

However, a growing number of lenders offer CIS mortgages, specifically designed for subcontractors in the construction industry. These mortgages consider the gross income (income before tax) of the CIS worker, potentially enabling them to borrow more than they could with a standard mortgage.

How to apply for CIS mortgages

Applying for a Construction Industry Scheme (CIS) mortgage involves several steps, some of which may vary depending on the lender. Here are some general steps:

Find a Suitable Lender or Broker: Not all lenders offer CIS mortgages, so the first step is to find a suitable lender. You might want to consider using a mortgage broker who has experience with CIS mortgages. They can help you find lenders who offer these types of mortgages and guide you through the application process.

Application: Once you’ve chosen a lender and prepared all necessary documents, you can fill out the mortgage application. 

Is the interest rate on a CIS mortgage typically higher than on a standard mortgage?

Explore CIS construction industry scheme mortgages for contractors in the construction industry scheme. Mortgages cater to the unique needs of contractors and subcontractors.

Interest rates on mortgages can vary widely and depend on numerous factors. These factors can include the size of the deposit, the term of the loan, the borrower’s credit history, income stability, and the general state of the economy.

In general, construction industry scheme (CIS) mortgages aren’t inherently associated with higher interest rates compared to standard mortgages. However, if a CIS subcontractor has unique circumstances, such as a variable income or a shorter work history, it may potentially affect the terms offered by the lender, including the interest rate.

Additionally, some specialist lenders who deal with CIS mortgages or other types of self-employed or contractor mortgages might have slightly higher interest rates compared to mainstream lenders, due to the perceived higher risk associated with these types of income.

If you’re a CIS subcontractor considering a mortgage, it’s worth speaking with a mortgage broker or advisor who has experience with CIS mortgages. They can provide guidance and help you find a mortgage product with the best terms for your situation.

It’s important to compare different mortgage offers to ensure you’re getting the best deal, and remember, the interest rate is just one part of the overall cost of a mortgage. Other factors, such as fees and charges, the length of the loan term, and whether the rate is fixed or variable, should also be taken into account.

What documents are needed to apply for a CIS mortgage?

When applying for a Construction Industry Scheme (CIS) mortgage, the following documents are usually required:

Proof of Identity: This could be a passport, driving licence, or another form of government-issued identification.

Proof of Address: This might include utility bills, council tax bills, or bank statements.3. Proof of Income: This is one of the most critical parts of a CIS mortgage application. As a CIS worker, you’ll need to provide documents that show your gross income (income before tax). This could include your payslips or invoices showing the tax deducted at source.

Tax Documents: You may also be asked to provide your HMRC tax calculations (SA302 forms) or your tax year overview, which will give further proof of your earnings.

Bank Statements: Typically, lenders will ask for 3 to 6 months’ worth of bank statements to confirm your income and regular expenses.

Details of Monthly Outgoings: Lenders will want to assess your regular spending to evaluate if you can afford the mortgage repayments. This could include details of rent or existing mortgage payments, utility bills, loan repayments, food and transport costs, etc.

Details about the Property: If you have already found a property you wish to buy, you will need to provide details about it, such as its price and location.

How does a CIS mortgage differ from a standard mortgage?

The method by which the lender evaluates the applicant’s income is what distinguishes a Construction Industry Scheme (CIS) mortgage from a conventional mortgage.

Income Assessment: For a standard mortgage, the lender usually considers the applicant’s net income (income after tax) when determining how much they can borrow. This can be problematic for CIS subcontractors, as contractors deduct 20% from a subcontractor’s pay and pass it to HM Revenue and Customs (HMRC), which reduces their net income. However, with a CIS mortgage, the lender considers the subcontractor’s gross income (income before tax), potentially enabling them to borrow more than they could with a standard mortgage.

Gross Income Consideration: Under CIS mortgages, lenders will consider your gross income (income before tax) rather than just your net income (income after tax) for mortgage assessments. This potentially allows you to borrow more than you could with a standard mortgage where only your net income is considered.

Tailored for Construction Workers: CIS mortgages are designed specifically for subcontractors in the construction industry who are paid under the Construction Industry Scheme. These mortgages take into account the unique income circumstances of these workers, such as variable income and tax deducted at source.

Accessibility: While many mainstream lenders may not fully understand the financial profile of CIS workers, lenders offering CIS mortgages are familiar with this scheme and are more likely to provide mortgages to these workers.

Flexible Criteria: Some lenders offering CIS mortgages may have more flexible criteria regarding credit history and the length of employment history, which can be beneficial to construction workers who have fluctuating incomes or who haven’t been self-employed for a long time.

Potential for Higher Borrowing: As the gross income is usually used for the affordability assessment, a CIS mortgage can sometimes offer a higher loan amount compared to a standard mortgage.Remember, while a CIS mortgage offers several benefits, it’s essential to ensure that any mortgage you take is affordable for you in the long term. Always consult with a mortgage advisor or broker to discuss your individual circumstances and options.

How much can I borrow for a CIS mortgage?

The amount you can borrow with a Construction Industry Scheme (CIS) mortgage depends on several factors, with your gross income (income before tax) being one of the main considerations.

Generally, lenders use a multiple of your annual income to calculate how much you can borrow. This multiplier varies between lenders but is often between 4 to 5 times your gross annual income.

For instance, if you earn a gross income of £50,000 per year, you may be able to borrow between £200,000 and £250,000.However, it’s not solely based on income. 
Other factors also play a significant role in determining the loan amount:

Credit Score: Your credit history and score will impact the mortgage offer. A better credit score could mean more favourable terms.

Outstanding Debts: If you have significant debts, it may reduce the amount you can borrow.3. Deposit Size: The size of your deposit will also play a role. A larger deposit often leads to more favourable loan terms and a larger loan size.

Affordability Assessment: Lenders will also consider your regular monthly outgoings to make sure you can afford the mortgage repayments.

Property Value: The value of the property you’re planning to buy also plays a role, as lenders will need to ensure the loan amount doesn’t significantly exceed the property’s value.

These factors can vary significantly between different lenders, so it’s a good idea to speak with a mortgage broker or financial advisor to get an accurate idea of how much you might be able to borrow. Always remember, it’s important to ensure that any mortgage you take is affordable for you in the long term.

How much deposit will I need for CIS mortgages?

The size of the deposit you’ll need for a Construction Industry Scheme (CIS) mortgage can vary depending on the lender’s criteria and the specific mortgage product. However, typically, you should expect to provide a deposit that’s at least 5-10% of the property’s value.
This means if you’re planning to buy a property worth £200,000, you’d likely need a deposit of between £10,000 (5%) and £20,000 (10%).

However, it’s worth noting that providing a larger deposit can make your application more appealing to lenders and potentially secure you a lower interest rate. For instance, some of the best mortgage rates are typically available to borrowers who can provide a deposit of 20-25% or more.

The exact deposit required can also depend on other factors such as your credit score, income, and the lender’s assessment of the affordability of the mortgage repayments for you. Always consult with a mortgage advisor or broker to discuss your individual circumstances and options.

Is there a minimum income requirement for applying for a CIS mortgage?

There isn’t a universally set minimum income requirement for a Construction Industry Scheme (CIS) mortgage. Each lender will have their own criteria, including their own minimum income requirements. These can vary greatly between different lenders and mortgage products.

However, all lenders will assess your ability to afford the mortgage repayments based on your income and outgoings. This means that while there may not be a specified minimum income requirement, you will need to demonstrate that you have a regular income and that you can comfortably afford the mortgage repayments.

It’s important to note that for CIS mortgages, lenders typically consider the applicant’s gross income (income before tax) rather than their net income (income after tax). This can potentially allow you to borrow more than you could with a standard mortgage where only your net income is considered.If you are unsure about whether your income will be sufficient for a CIS mortgage, it could be beneficial to speak with a mortgage broker or advisor. They can provide advice based on your individual circumstances and help you understand the options available to you.

Will I require any accounts?

For a Construction Industry Scheme (CIS) mortgage, lenders will primarily want to see evidence of your income, typically in the form of your CIS vouchers, payslips or bank statements showing your deposits from CIS work. They use this information to verify your gross income.

While it’s common for lenders to require 2-3 years of accounts for self-employed applicants seeking a standard mortgage, this isn’t always the case for CIS mortgages. Some lenders offering CIS mortgages understand the unique circumstances of CIS subcontractors and may have more flexible requirements. They might accept a shorter history of income evidence, sometimes as little as 6 months or a year.

However, requirements can vary significantly between different lenders. Some may still request a full year (or more) of accounts or tax returns, especially if your income is irregular or if there are other risk factors associated with your application.It’s advisable to speak with a mortgage broker or financial advisor who has experience with CIS mortgages. They can help you understand what specific lenders will require and can guide you through the application process.

Can someone with a poor credit history apply for a CIS mortgage?

Yes, someone with a poor credit history can still apply for a Construction Industry Scheme (CIS) mortgage. However, having a poor credit history can make it more challenging to secure a mortgage, and it could impact the terms of the mortgage, such as the interest rate and the size of the deposit required.

While mainstream lenders often have stringent credit requirements, some specialist lenders and building societies are more flexible and may consider applicants with less-than-perfect credit histories. These lenders are likely to take a more holistic view of your financial situation, considering factors like your current income and employment stability alongside your credit history.

When offering a mortgage to someone with a poor credit history, lenders may:

1. Charge a higher interest rate to offset the increased risk.

2. Ask for a larger deposit, sometimes 15-20% or more.

3. Lend a smaller multiple of your income.

If you have a poor credit history and are considering applying for a CIS mortgage, it can be helpful to consult with a mortgage advisor or broker. They can guide you towards lenders who are more likely to accept your application and can provide advice on how to improve your credit score.

Is it hard to get a mortgage as a CIS subcontractor?

Obtaining a mortgage as a Construction Industry Scheme (CIS) subcontractor can be more challenging compared to a traditionally employed person, primarily due to the unique nature of income and employment in the construction industry. This can make it more difficult for CIS subcontractors to meet the standard criteria set by traditional lenders.

CIS subcontractors often have variable income due to the project-based nature of their work, and their income is often taxed at source. Many traditional lenders base their mortgage affordability calculations on net income (income after tax), which can disadvantage CIS subcontractors.However, it’s important to note that this doesn’t mean it’s impossible to get a mortgage as a CIS subcontractor. There are specialised CIS mortgages designed specifically for individuals in this situation. Lenders offering these mortgages usually consider the gross income (income before tax) of the subcontractor, which can significantly improve the borrowing potential.

Additionally, there are mortgage advisors and brokers who specialise in CIS mortgages and can guide you through the application process. They have a better understanding of the unique circumstances of CIS subcontractors and can help find suitable lenders.As with any mortgage, having a good credit history, a stable income, and a decent deposit will increase your chances of securing a mortgage.

Is there a possibility to remortgage for individuals who are under the CIS?

Yes, it’s definitely possible for individuals who are under the Construction Industry Scheme (CIS) to remortgage.

Remortgaging is a process where you switch your current mortgage to a different deal, either with your existing lender or a different one. This can be done for several reasons, such as securing a lower interest rate, changing the term of the mortgage, borrowing more money, or consolidating debts.The process of remortgaging under the CIS is much like applying for an initial mortgage. Lenders will assess your income, credit history, the value of your property, and other factors to determine the terms of the new mortgage. For a CIS remortgage, your gross income (income before tax) is typically considered.

Keep in mind that while remortgaging can have benefits, there can also be costs involved, such as early repayment charges from your current lender, valuation fees, or legal fees. It’s important to take these into account when considering whether remortgaging is the right choice for you.

Are there special mortgage advisors who specialise in CIS mortgages?

Yes, there are indeed mortgage advisors who specialise in Construction Industry Scheme (CIS) mortgages. These professionals are experienced in handling the unique income and employment circumstances of CIS subcontractors and can help navigate the process of applying for a CIS mortgage.

A CIS mortgage specialist will have up-to-date knowledge of the lending market and can potentially find lenders who are most likely to approve your application based on your individual circumstances. They can also assist with the application process itself, making it smoother and easier for you. Working with an advisor who specialises in CIS mortgages can be especially beneficial if your circumstances are complex, such as if you have a poor credit history or haven’t been registered with the CIS for very long.

When looking for a mortgage advisor, it’s important to ensure they are properly accredited. In the UK, mortgage advisors should be registered with the Financial Conduct Authority (FCA). Don’t hesitate to ask for their registration number and verify it on the FCA’s register.