There are a number of specialist mortgage schemes which cater for certain types of employment or profession.
Some of these will specifically target self-employed individuals, contractors and subcontractors. Subcontractors working in construction will generally have their pay calculated under the CIS rules and are given a tax voucher for each payment received.
This can sometimes cause confusion when applying for a mortgage, as some lenders treat you as self-employed with others saying you’re employed.
This guide will explain how you can get a mortgage as a registered CIS construction worker, with access to award winning advice when you’re ready to apply for a mortgage.
Table of Contents
The Construction Industry Scheme (CIS)
The Construction Industry Scheme, or CIS, was set up by HMRC to collect income tax throughout the year from those individuals who carry out construction work.
The tax deductions are made by the contractor that ’employs’ the construction site workers, or subcontractors and is sent on to HMRC. The deductions count as advance payments towards the subcontractor’s income tax and National Insurance.
For each payment made the contractor must issue a CIS payslip detailing the gross pay, deductions and net pay. This document is also called a payment and deduction statement or voucher. Before paying a subcontractor their CIS status needs to be verified with HMRC and this confirms whether they are registered and what rate of deduction to use when calculating ‘net’ pay.
It is mandatory for contractors to register for CIS where they pay subcontractors for undertaking construction work.
Subcontractors are not obliged to register, but this will affect the amount of tax initially deducted.
Are you a subcontractor receiving CIS vouchers?
A CIS mortgage may allow you to borrow more money, just by showing your payslips.
5% deposit
1 year self-employed
First time buyer
What is a CIS mortgage?
A CIS mortgage is not actually a mortgage product, it is a special way of assessing a mortgage application for subcontractors registered with the CIS.
For most salaried employees, their employer operates a PAYE system which deducts the correct amount of tax and national insurance each month.
Self-employed individuals, on the other hand, work for themselves and have to sort their own taxes out via self assessment.
While CIS workers are classified as self-employed by HMRC, for mortgage purposes some lenders choose to treat them as if they were employed.
This means that the gross income earned is used to work out the size of mortgage and there’s no need to provide 2 years of self assessment accounts or SA302.
This will make a big difference to the amount you can borrow
Eligibility and criteria
To be eligible for a CIS mortgage you need to be a subcontractor that is already registered with the Construction Industry Scheme (CIS) and you are receiving payments from your contractor. The advantages that a CIS mortgage provides are only available to registered individuals.
The CIS has it’s own qualification criteria and you should be a worker within the construction industry, undertaking work such as:
- preparing the site – 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
Professional work done by architects and surveyors, whether on or off site, is not a construction operation.
General mortgage criteria
As well as being a CIS registered worker, you will also have to meet the normal lending criteria.
Income
You need to be able to provide CIS payslips or vouchers for the most recent 3-6 months. 12 months is ideal.
Age
The borrowers need to be aged between 21 and 75.
Mortgage term
The mortgage should finish before age 80-90.
Deposit
5% minimum deposit. As with any mortgage, the higher the better.
Credit status
You should have a good credit score with no major problems on your credit report.
How are CIS mortgages different?
Lenders that offer CIS mortgages recognise that a sub-contractors declared net income is not the best figure to use when assessing a mortgage application.
As a self-employed individual, sub-contractors would normally be expected to use their business accounts or SA302 as proof of earnings. But this would mean that any mortgage is assessed on the profit figure, rather than the gross income received, which is higher.
So lenders that operate in the CIS market will take the gross income shown on your payslips, or payment and deduction statement.
By using the gross income from the payslips, you can qualify for a much higher mortgage amount when compared to the self-employed/self assessment route.
Proving your income
This is the part of applying for a mortgage that self-employed workers would rather avoid.
If you are a CIS subcontractor who applies for a mortgage with a lender who does not recognise the CIS scheme, then you will be classed as self-employed. These lenders will need to see 2-3 years worth of trading accounts and/or SA302 tax forms.
And the mortgage will be calculated against the ‘after expenses’ income figure.
The process for a CIS mortgage lender is different.
They treat you more like an employee and will ask to see 3-6 months of sub-contractor payslips or vouchers as proof of income. They will use an average of your gross income to calculate how much they could lend you.
Not only is it easier and simpler to prove your income, by utilising the vouchers you are able to borrow more money.
CIS payslips
Self-employed workers don’t usually receive payslips, they work for themselves and have to complete annual self assessment returns for the taxman.
But a subcontractor working in the UK construction industry will get paid under CIS rules by their main contractor. This means that the contractor will make a deduction for income tax when issuing each payment.
The contractor is obliged to provide a summary of the income and deductions by way of a CIS payslip or voucher. There should be one that matches each payment made.
This payment and deduction statement acts like a payslip and shows the contractor’s name and tax reference, details of the payments made, the cost of any materials used and the deductions made.
These ‘vouchers’ are needed by mortgage lenders as proof of income and will replace the need to supply annual accounts or SA302 documents.
How much can you borrow?
Lenders will use your gross annual income to calculate how much you could borrow.
Ideally, you should provide them with 12 months worth of CIS payslips. If this isn’t possible, they may be able to look at the last 3-6 months of payslips and from there calculate your average annualised earnings.
Mortgage lenders working within the CIS scheme will use this gross (before tax) annual income figure for the purposes of getting a mortgage. Usually this can be multiplied by 4, but a few lenders can sometimes offer 5 times gross income.
As well as your earnings, the lender will need to assess your outgoings to determine the affordability of a particular mortgage amount.
Lender’s conduct a credit search to obtain this information from your credit file and from your bank statements. Potential mortgage figures will be reduced where you have payment commitments to credit agreements, which may include: Hire purchase, credit cards, personal loans, car finance.
EXAMPLE
Gross pay per month = £5000
£5000 x 12 months = £60,000
Gross annual income = £60,000
4 x £60,000 = £240,000 mortgage
5 x £60,000 = £300,000 mortgage
The main benefits
The primary benefit is that lenders will use the gross income from your CIS vouchers to determine the mortgage they will lend.
Not only does it make proving income easier, it also allows you to use more recent income figures and get approved for a higher amount. So you can use your most recent gross income figures and borrow up to five times this figure.
This will be substantially higher that the amount available from a standard self-employed mortgage.
Another benefit is the way you prove your income. As a registered CIS subcontractor each time you get paid you will receive a payslip, also known as a payment and deduction statement. This will be provided by the main contractor that hired you.
This ‘payslip or voucher’ can be used to prove your regular income, just like a regular employee.
By choosing to be assessed as a CIS worker you can use these payslips as proof of gross income, rather than having to produce up to date self employed accounts or SA302. CIS lenders will appreciate the fluctuating nature of your income and will look to use an average of your figures over a 3-6 month period.
CONTACT A CIS MORTGAGE EXPERT
If you wish to see how a CIS mortgage can help, we can put you in touch with a fully qualified whole of market mortgage broker.
CIS mortgage deposits
In terms of the amount of deposit a lender may ask for, there’s no difference between a standard mortgage and a CIS mortgage.
This is good news, as you gain access to the range of 95% mortgages, where a deposit of just 5% is required.
Banks and building societies will always use a percentage (%) when stating the deposit they need. And this percentage is calculated against the purchase price agreed for your new home.
As with any type of mortgage, the more deposit you have, the better mortgage choices you have to choose from. If you are able to save for a 10% deposit then you will have more competitive deals to look at.
Guide to Deposits
Our guide explains what a mortgage deposit is and how it affects your mortgage choices.
For first time buyers, the deposit will always come from savings, as a cash deposit. But if you are moving home then you will likely have some equity in your home that will be used as the deposit on the next house.
The amount of this deposit will change according to the price you can sell your property for and the associated legal and mortgage fees that get paid from it. If you have additional savings you can add more cash to this figure, to make the deposit higher.
If you can demonstrate to lenders that you are financially stable, with a healthy deposit, then it puts you in a good position when searching for the best mortgage deal.
Options if you have bad credit
With bad credit your available options will depend on what the credit issues were, and when it took place.
You will find there are many high street lenders who will accept you, even with a missed mobile phone payment. Having bad credit does not simply remove all of your borrowing choices, it’s not that black and white.
It is the type of credit issue that you experienced that will determine which options may be available. For a few missed payments, or perhaps a small CCJ, then you should be OK.
But instances of large CCJ’s or even an IVA will limit it you to just a few lenders.
If you believe that you have bad credit then it is a good idea to request a copy of your credit report, before you approach any lenders. Otherwise you may make your situation worse as each mortgage application gets added to your credit file.
To properly understand your mortgage options with bad credit we recommend seeking advice from an independent mortgage broker. They can look at your credit report and give you an indication of what CIS mortgages you could be eligible for.
General mortgage options
The full range of mortgage options will normally be available to you. These allow you to tailor the mortgage to better suit your needs.
The main options will be:
Type of interest rate
Interest rate deals will either be variable, which can change, or fixed, which don’t change. Most people prefer to take a fixed interest rate for 2-5 years.
repayment method
The repayment method is the way that you will pay the mortgage back. There are actually three different ways, not all of these will be permitted by your lender.
- Repayment – The traditional capital and interest mortgage where you pay back some of the mortgage each month.
- Interest only – Here you only pay the mortgage interest each month and nothing towards the capital sum.
- Part and part – A part and part mortgage is a combination of 1 & 2 above.
mortgage term
The term is the number of years that your mortgage is setup for. The term will directly affect the monthly cost of a repayment mortgage.
GUIDES
FURTHER READING
Not a CIS contractor?
If you work as a contractor but not within the CIS industry then a contractor mortgage may be useful for you. These lenders understand your income profile and can allow your gross day rate to be used to calculate the maximum mortgage.
Mortgage advice for CIS workers
If you are receiving CIS vouchers and looking for a mortgage then we can help you.
Respect Mortgages works with an award winning mortgage broker that has specialist advisers helping clients just like you with their CIS mortgages and self-employed mortgages.
They understand the Construction Industry Scheme, including how sub-contractors pay works, and which lenders are eager to help.
Their expert brokers will know the CIS lending criteria and products inside out, and will have access to exclusive rates and deals only available to brokers.
FREQUENTLY ASKED QUESTIONS
I’ve only been registered for 3 months
There are some lenders that will consider 3 months. The best option is to chat with a broker.
Are first time buyers eligible?
Yes, as long as you are registered with the CIS and receiving vouchers, first time buyer mortgages are available.
I only have 5% deposit
A 5% deposit is the minimum amount needed. You will find more choices of lenders with a deposit of 10% or more.
What about mortgages with bad credit?
Your options will depend on the exact nature of the bad credit, but there are lenders who will consider most scenarios.
Do I have to pay a broker fee?
Yes, the brokers we deal with will charge you a fee for researching and arranging your mortgage.
