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Generally, mortgage lenders assess borrowers’ loan potential through 2 to 3 years’ worth of income proof. Requirements may be less when you work under the Construction Industry Scheme (CIS). This is informally called CIS mortgage. Learn more about affordable CIS mortgages here.
What Are CIS Mortgages?
There is no such term as CIS mortgage. It is simply a standard mortgage but with less strict requirements if you are under CIS. Since CIS workers offset business expenses and get advanced tax deductions from their CIS payroll, their net income ultimately shows lower figures. This affects their mortgage loan affordability and the opportunity to find higher mortgage amounts.
Mortgage providers usually look at your net salary (deducted with income tax and National Insurance contributions), and you need to have at least two continuous years of work record. Fortunately, if you are a net-paid CIS worker, this is no longer the case, as:
- Mortage providers look at your gross profits instead.
- You can already be considered for mortgages even with less than a year’s accounts (or at least 3 to 6 months CIS bank statements for some lenders).
This means you can get wider choices and are able to borrow at higher mortgage rates without waiting for more time to fulfill the standard mortgage criteria. This mortgage construct is informally coined as CIS mortgage.
How CIS Mortgage Works
Usually, a mortgage provider requires 12 to 24 months’ income proof before they consider your application. Some do not accept CIS worker applications, but many do. Under CIS scheme mortgage, you will be most likely required fewer income proof, in which some are flexible enough to accept bank statements, tax returns, or other documents.
Lenders assess applicants on a case-by-case basis. Here’s how it works:
- Mortgage lenders use your payslips to work out an estimate of your annual turnover and check your other financial commitments.
- They usually multiply your estimated annual income by four to five times for the offer.
- A larger down payment will offer you better choices and lower CIS mortgage rates.
Benefits of CIS Mortgages
Here’s what you can benefit if you qualify for affordable CIS mortgages:
- You can borrow more as your annual turnover will be estimated by gross amount instead of your net income, likely showing you have a healthy debt-to-income ratio.
- You can apply with fewer account requirements. Generally, for a sole trader, two to three years of accounts are required. Under CIS, your application can be approved even with 12 months or less accounts.
- You have wider access to mortgage deals, even up to a higher rate.
- You can get the most suitable lenders.
- You can still apply for a mortgage despite bad credit.
Useful read: CIS Penalties
Eligibility for CIS Mortgages
Everyone involved in the construction industry, including those who indirectly work on the physical construction of a building (e.g., architects), is eligible for home loans under CIS if they meet lenders’ criteria:
- three to six months of CIS accounts or payslips (some will require more)
- working age between 21 and 75
- less to no issue in credit history
- minimum of 5 per cent deposit
Unregistered subcontractors are required to have a minimum of one year account or an SA302. Registered ones, on the other hand, can apply with fewer proofs of income. It is mandatory for contractors to go through CIS registration first, and whilst it is optional for subcontractors, registering for CIS will streamline their mortgage application.
What If You Have a Bad Credit?
Having bad credit does not automatically mean you can no longer get a CIS mortgage. It may simply limit your options, from lenders to mortgage rates. Your options will depend on how severe your credit issue is and how recent it is. If the issue occurred several years ago, some lenders are still willing to give you the right mortgage according to your financial situation.
CIS Mortgage Rates
If you have a good self-assessment and credit report, this positively impacts on your loan-to-value ratio, and lenders may multiply your annual income by four or five times. Your chance to get a lower interest rate may be affected when you have other financial commitments or debts.
Having bad credits and being turned down by several lending companies can significantly affect your credit score. Whilst you may still get a mortgage, you have fewer options.
To get the best mortgage rates, it is advisable to work with a CIS mortgage broker or CIS advisor who knows the ins and outs of the construction industry. Experts use a reliable CIS mortgage calculator to work out your rates and monthly payments according to your deposits, budget, and other variables before you agree to the deal.
How Much Can You Borrow?
How much you can borrow largely depends on your estimated annual income and existing financial commitments. Lenders will use these to assess your overall affordability and borrowing potential.
How Much Deposit Is Needed?
If you have a strong level of employment records, your mortgage application may be accepted even if you only give a 5% deposit. If you want a higher mortgage and the best interest rates, aim higher, preferably more than 10%.
Most mortgage applicants opt for a deposit of 10 to 15 per cent to obtain better mortgage rates. Any amount above that would be even better. If you anticipate leaving the UK, you will be required to pay a larger mortgage deposit in your application.
How to Apply for Affordable CIS Mortgages
- Register under CIS. If you do not register, mortgage lenders will most likely ask you for one to two years of accounts as proof of income. When registered, you may find subcontractor-friendly lenders willing to accept fewer accounts.
- Compile all necessary paperwork. Mortgage lenders will require a specific number of CIS payslips or bank statements to assess your business expenses and credit commitments.
- Evaluate your credit rating. A recent bad credit history will likely lead to mortgage application refusals, which can further negatively impact your credit record.
- Seek advice from a CIS mortgage advisor. A mortgage expert understands how overwhelming the application process can be. They can help secure approval on your first attempt and find the best mortgage deal and repayment terms.
Get Expert CIS Advice
Affordable CIS mortgages let you apply with fewer income proofs and focus on your gross profits instead of the usual three years of income documentation. But this does not guarantee that you will get approved on the first time.
To boost your chances of success, consider seeking guidance from the tax and financial advisers at Legend Financial. With their expertise in CIS matters, they can help you navigate your mortgage application under the scheme. Reach out today to get started!
