Construction industry scheme mortgages

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Construction industry workers may be eligible for Construction Industry Scheme mortgages (CIS mortgages). Construction Industry Scheme mortgages can be great for when you don’t have three years accounts or have declared a low net profit. This is because CIS mortgages allow you to use the gross income on your payslips as opposed to your accounts to show your income.

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What is the construction industry scheme?

The Construction Industry Scheme (CIS) was introduced by the HMRC with the aim of allowing contractors to deduct money from a subcontractor’s payments and pay it to the HRMC. The deductions would then count as advance payments towards the subcontractor’s tax and National Insurance.

Contractors must register for the scheme, however subcontractors have the option not to register. If subcontractors don’t register for the CIS then deductions are taken from their payments at a higher rate. Payslips are usually provided to subcontractors showing gross and net income.

Construction Industry Scheme mortgages can be useful as applicants applying for self-employed mortgages can sometimes struggle. This is because many sole traders will write off as many expenses as possible against their income in order to pay less tax. As lenders generally assess affordability based on net profit figures, the mortgage amounts offered are generally lower than anticipated.

A CIS mortgage enables lenders to calculate affordability on gross income figures, rather than net income figures, maximising the value of mortgage amounts offered to applicants.

How do I qualify for a CIS mortgage?

It’s important to understand that not all lenders will offer CIS mortgages. The lenders that will lend each have varied criteria and assess applicants on a case by case basis. As a result, there isn’t one clear explanation that will suit everybody. That being said, there is a general criteria that will need to be met, which is the following:

    • 3-6 months CIS payslips (usually 6 months)
    • 3-6 months bank statements (usually 6 months)
    • Tax on the scheme must be deducted at 20%

How much can I borrow for a CIS mortgage?

Lenders generally calculate your borrowing power based on your average annual income. To do this, lenders will either ask for twelve months payslips or they may ask for 3-6 months of your latest payslips. In either case, lenders will use the gross amounts to calculate your average annual income.

Once lenders have assessed your average annual income, they will then offer to lend an amount according to their own criteria. Lenders generally lend up to 4-5x the applicant’s annual income. Lenders will also take your outgoings into consideration, along with any other financial agreements you may have in place. Financial agreements could be in the form of loans, mortgages and any other financial commitments. A combined result of the above will have an effect on the maximum mortgage on offer.

What deposit will I need for a CIS mortgage?

In all mortgage cases, having a higher deposit certainly enables you to choose from better mortgage products and rates. It is possible to obtain a mortgage with as little as a 5% deposit, however our expert mortgage advisors would recommend aiming for at least a 10% deposit. Higher deposits often enable better mortgage rates. If possible a 15% deposit would be ideal and anything above is a bonus.

Will I require any accounts?

If you’re registered for the CIS then lenders usually only require your payslips to prove your income. If you’re not registered to the CIS, you may be asked to provide accounts for at least one year in addition to a SA302. Other lenders may require at least three years of employment history.

If you’re not registered for the CIS then your affordability will be based on your declared net income figures. This will result in your maximum mortgage amount being lower in comparison to being registered for the CIS. That’s why a CIS mortgage can be beneficial for self-employed construction workers.

Construction industry scheme mortgages with bad credit

If you need a CIS mortgage with bad credit, there may be some lenders willing to approve you a mortgage. Our advisors specialise in adverse credit and can explain everything to you in greater detail. Simply make an enquiry and an expert advisor will call you.

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