The Construction Industry Scheme, better known as CIS, allows registered contractors to deduct money from the payments they make to subcontractors. The deducted amount instead goes to HM Revenue & Customs as an advance payment towards the National Insurance contributions and income tax that subcontractor will be required to pay for their tax account. The contractor typically provides payslips to indicate gross and net income.
There is no obligation for subcontractors to register for CIS, but for those who choose not to, deductions are made a significantly higher rate: 30%, instead of 20%. The government provides detailed CIS guidance for contractors and subcontractors which details everything that is/is not covered by the scheme.
Mortgages for CIS Subcontractors
There are many lenders who do not offer CIS mortgages and many of those that do have different lending criteria. Typically, CIS mortgages enable subcontractors to use the payslips they receive from contractors as proof of income. This is as opposed to having to provide full business accounts or an SA302 ( a document showing end-of-year tax calculation from a Self Assessment tax return). This can be of particular benefit for applicants who have fewer than 2 years of accounts to provide.
There isn’t a ‘one-size-fits-all’ criteria among CIS lenders. They will usually assess applicants on an individual basis. That said, there is a broad list of requirements that applicants will have to meet. In most cases, mortgages for CIS workers will require you to provide all CIS payslips for the last 3 months. Some will even ask you to provide 6+ months of payslips. The lender will use these to calculate your average monthly income, which will enable them to estimate an annual income figure. You will probably be asked to provide bank statements that cover the same period of time.
How much can you borrow on a CIS mortgage?
CIS lenders will calculate the average from the earnings shown on your last 3-6 months of payslips to establish an estimated annual income. The amount they offer will usually be based on this calculation alongside their own criteria – often in the range of 4-5 times your annual income. This is a very broad estimate, and it will vary from lender to lender – a specialist mortgage broker will be able to advise you on the full criteria of different lenders. Ultimately, the application will involve affordability testing based on those calculated income figures.
What deposit is usually required for a CIS mortgage?
You should aim to put forward a minimum of 10% for a deposit. In some cases, a lender will allow a deposit for 5%. Remember, however, that the greater the deposit you have, the more potential there is to access the best rates.
What do I need to qualify for a CIS mortgage?
If you are a subcontractor registered for the CIS scheme, and you work for one employer who pays your tax and national insurance then payslips will usually be accepted by lenders as adequate proof of income. For subcontractors who are not registered, and thus pay the higher rate of tax, you should expect to provide 1+ years of accounts and/or an SA302. The declared figure(s) will be used for the mortgage calculation.
In the past, self-employed people have been required to provide 2-3 years of accounts to even be considered for a mortgage. Today, there are some lenders who will accept just 1 year. Contracted workers are usually required to demonstrate 12 months of continuous employment, with at least 6 months remaining on their contract. Alternatively, they may be asked to demonstrate 2+ years of service in a single type of employment.
Most lenders are aware that contract workers will have certain gaps in their employment – these are usually either time between contracts or holidays.
More than 25% of UK workers are now either self-employed or on contract. This is pushing lenders to reconsider some traditional, somewhat inflexible, approaches towards this type of worker. Lenders are having to adapt to accommodate changes in working patterns.
Are there CIS mortgages for Subcontractors with bad credit?
CIS mortgages are counted as a specialist area in the lending industry, and there are still many lenders who don’t offer them. If you have bad credit, you will find the pool of available lenders gets even smaller. At Think Plutus, we have access to a number of specialist lenders, including those who will consider mortgages for CIS workers with bad credit. These lenders will assess on a case-by-case basis, and can even base their assessment on the gross figure on your CIS payslip.
CIS mortgage rates
Not every lender accommodates CIS Subcontractors in their mortgage products, but we have access to banks and building societies that do. In some cases, more specialist employment arrangements attract a higher rate of interest, but this shouldn’t be the case with CIS subcontractors. Our specialist mortgage advisers can give you an accurate indication of rates and monthly payments prior to applying for an agreement in principle.
The CIS mortgage lenders for Subcontractors
With our specialist knowledge in the area, Think Plutus can source a range of mortgages for CIS subcontractors. When you seek advice from one of our expert advisers, you maximise your chances of success with your application. One of the key benefits of this is that it protects your credit rating; being turned down by a number of lenders can have a negative impact on your credit score. The lenders we have access to can offer some excellent mortgage rates, and we can help you ensure you meet the necessary criteria.
Advice on CIS mortgages for Subcontractors
It doesn’t have to feel like you’re climbing a mountain when applying for a CIS mortgage as a subcontractor. Our specialist team at Think Plutus has access to the full market of mortgage products and knows exactly where to look to source the right deals for different people. We have access to 10,000+ mortgage products from 100+ lenders and can provide expert advice and guidance throughout the process of applying for your mortgage.
If you are a Subcontractor looking to apply for a CIS mortgage, Think Plutus, and get in touch today.