Last reviewed on 5th February 2022
Construction industry workers may be eligible for Construction Industry Scheme mortgages (CIS mortgages). Although lenders don’t offer a ‘CIS mortgage’, the term is used for when applicants using the CIS scheme apply for a mortgage.
CIS mortgages are ideal for when you don’t have three years accounts or have declared a low net profit. This is because lenders allow construction workers to use their gross income on payslips instead of filed accounts.
If you’re a construction worker, you’re in the right place. This guide will explain how you can get a mortgage as a construction worker. Furthermore, our experts can help you when you’re ready to apply for a mortgage.
What is a CIS mortgage?
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 then count as advance payments towards the subcontractor’s tax and National Insurance.
Contractors must register for the scheme but subcontractors don’t have to. If subcontractors don’t register for the scheme then deductions are taken from their earnings at a higher rate. Payslips are usually provided to subcontractors showing their gross and net income. Those using this scheme can then apply for a mortgage using this method of income, allowing them to benefit from borrowing more.
How do CIS mortgages work?
CIS mortgages are useful as self-employed applicants can sometimes struggle to get a mortgage. This is because many sole traders will write off as many expenses as possible against their income in order to reduce tax. As lenders generally assess affordability based on net profit figures, the mortgage amounts offered are typically lower than anticipated.
A CIS mortgage allows lenders to calculate affordability on gross income figures, rather than net income figures. This can increase the mortgage amount you’re able to borrow.
Who can qualify for a CIS mortgage?
It’s important to understand that every lender doesn’t offer CIS mortgages. The lenders that do, each have varied criteria and assess applicants on a case by case basis.
Each lender will usually require 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%
What are the benefits of a CIS mortgage?
Applying for a mortgage while using the CIS scheme can be very beneficial.
Certain benefits of a CIS mortgage include:
- Borrow more – CIS workers can borrow more, as your accounts will be assessed on your gross income, rather than your net income
- Apply with fewer accounts – Most lenders require at least three years’ accounts, but with the CIS scheme, you may be approved with just one years’ accounts
- Better rates and deals – As you can borrow more, you may be offered better rates and deals
- Suitable lenders – Most lenders offer mortgages to CIS workers, so you may benefit from your profession in addition
How much can I borrow for a CIS mortgage?
Lenders will 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 four times an applicant’s annual income.
Your outgoings will also be taken into consideration, along with any other financial agreements you have in place. Financial agreements include loans, mortgages and outstanding credit cards for instance. A combined result of your income and outgoings will give lenders an indication of how much you’re able to borrow.
How much deposit will I need for a CIS mortgage?
Saving a higher deposit for a mortgage certainly enables you to choose from better mortgage rates. It is possible to get a mortgage with a 5% deposit, but we recommend aiming for at least a 10% deposit.
Larger 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 scheme then lenders only require your payslips to prove your income. Unregistered applicants may be asked to provide accounts for at least one year in addition to an SA302. Other lenders will require at least three years of employment history.
If you’re not registered for the scheme, 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. This is why a CIS mortgage can be beneficial for self-employed construction workers.
What if I have bad credit?
If you need a CIS mortgage with bad credit, there may be some lenders willing to offer you a mortgage. Our experts specialise in adverse credit and can explain everything to you in greater detail. Simply make an enquiry and an expert advisor will call you back.