Guide to Construction Industry Scheme (CIS) mortgages

Guide to Construction Industry Scheme (CIS) Mortgages

If you’re a CIS contractor (or subcontractor), you’ll have noticed how difficult it is to get a mortgage from a mainstream lender. That’s because you, along with other fixed-term contractors, are a specialist borrower.

As such, some (but not all) lenders have specialist lending criteria that you must meet to have your application approved. So, two questions:

1. How do you know if the lender you approach is CIS-contractor-friendly?
2. How do you know what criteria they expect you to meet so that you can confidently apply for a mortgage?

With over two decades of experience helping CIS contractors, our specialist CIS mortgage partner Freelancer Financials can answer questions for you. Using their advice in this guide will help get you the mortgage you deserve.

Take the first step towards your property purchase today by completing our call-back form below.

Why CIS Contractors Don’t Fit Traditional High Street Pigeonholes

Before we get into the nitty gritty, let’s get one thing straight: although you’re self-employed, you’re not when it comes to mortgages. But neither are you employed. So where do you stand?

A typical self-employed mortgage uses tax returns and accounts to work out your affordability. But, as you’re deducted 20% tax at source, you don’t really fit that mould.

And, whilst you have payslips, they’re not the same as PAYE payslips. So, a typical full-time employee’s mortgage isn’t right for you, either. If a mortgage advisor tries to offer you either, you know they don’t understand how you work.

It’s Time for Plan B: Look for a CIS-Friendly Mortgage Lender

Lenders won’t advertise the fact that they don’t do CIS mortgages. And, as CIS workers make up a comparatively small percentage of the UK mortgage market, it’s unlikely lenders that are CIS-worker-friendly are going to splash out on adverts to announce it.

But that’s probably a good thing. Why?

Remember, you are a specialist borrower. You need someone to interpret your income in a way that a specialist underwriter will understand. And, whilst you may think that your accountant’s the go-to source, it’s not their job.

If anything, an accountant’s job wholly conflicts with what you want your income to say to a mortgage underwriter. An accountant makes your income tax-efficient, when you want an underwriter to see just how much you do earn. Never the twain shall meet.

So, what’s the answer? Introducing the contractor-specialist mortgage broker Freelancer Financials.

How Much Can I Borrow for a CIS Mortgage?

Rather than work from accounts and SA302s, CIS mortgages use your contract day rate as the base of the affordability calculation. This will allow you to potentially borrow much more, by comparison. It will also help CIS subcontractors with less than two years’ accounts get on the property ladder.

By using your day rate and your payslips, it enables CIS lenders to assess contractors on their exact situation. So they can do that, you’ll need to provide your CIS payslips for the last 3-6 months, depending on the lender. To corroborate your payslips, they’ll probably ask for your corresponding bank statements, too.

With this information, the lender will then annualise that sample income to give them a salary equivalent. From there, they’ll use an affordability vector (a multiplier), usually between 4.5 and 5.5, to work out how much you can borrow.

Calculate Your Borrowing Power

Find out how much you could borrow based on your CIS day rate using our quick and easy mortgage calculator.

How Do I Qualify for a CIS Mortgage?

Most roles you’ll find on a building or development site are included in CIS mortgage criteria:

If your role is there, you’ll need the following to qualify for a CIS mortgage:

• 3-6 months CIS payslips,
• CIS registration scheme document, showing tax deducted at 20%,
• At least 5% deposit to put down, more if you can.

If you work in the construction industry but aren’t registered, we can still help. If you have at least one year’s accounts, you could qualify for a self-employed mortgage. These mortgages rely on accounts and tax returns, rather than CIS payslips and work off your SA302 rather than your day rate.

What Interest Rates Should I Expect?

There’s no reason why, as a CIS contractor, your mortgage interest rate will suffer because of the way you work.

So, if you meet the criteria set out above, a lender will also consider:

• How much deposit you have:
  • The lower your loan-to-value (amount you borrow versus property value), the less risk you represent. The lower the risk, the better your interest rate.
• Credit history:
  • Although a few lenders consider less-than-perfect credit, the better your credit history, the lower your interest rate will be.
• How your application is presented:
  • A specialist CIS contractor mortgage broker will present your information so that an underwriter will see your genuine mortgage affordability, key to getting the best mortgage rate for your situation.

As with all mortgage applicants, it’s about the level of risk you represent to the lender. The more of their criteria you meet, the more competitive the interest rate they’ll offer you.

Need Expert CIS Mortgage Advice? Talk to the Experts at Freelancer Financials

• ✓ Access to CIS-friendly lenders
• ✓ Specialist underwriting terms
• ✓ 20+ years helping contractors

Click here to get started or call 020 8421 7999. The specialist CIS mortgage team at Freelancer Financials is here to help.

Do All Mortgage Providers Lend to CIS Workers?

Not all lenders offer mortgages for CIS contractors. Both a lack of understanding of how CIS operates and works and the flexibility of CIS contracts deters them from such lending.

But this is where you need a specialist broker on your side. Just because a lender doesn’t do CIS mortgages per se, they might still offer you a self-employed mortgage. They’re not the same.

Through Freelancer Financials, you can access genuine CIS-friendly lenders. We’ve cultivated, nurtured, and personally negotiated friendly underwriting terms with them to help CIS workers.

Any of our experienced advisors can tell you what CIS mortgages involve and what we need from you. By understanding your exact situation, we can match you to the most appropriate Construction Industry Scheme mortgage lender for you and you alone.

How Much Deposit Do I Need for a CIS Mortgage?

As with all mortgages, the bigger the deposit you have, the better the terms will be. Ideally, you’d have at least 10% to put down. Even a little bit more may catapult you to the next bracket.

But we have negotiated with some lenders as little as a 5% deposit for CIS workers. It’s important that, with such a low deposit, other characteristics of your profile (i.e., credit history, work history, etc.) pass with flying colours.

Getting a CIS Mortgage with Bad Credit

There are a select few lenders that will consider CIS contractors with less-than-perfect credit. The choice, though, is more restrictive.

What’s important is that you come clean to our advisors up front. If you’re not sure how your credit report looks, sign up with a credit agency and get a copy.

If there are CCJs or defaults on there from two or more years ago and you can prove that you’re working towards redressing them, a lender will look more favourably upon you. Don’t ignore any black marks on your credit file. If there are any there, a lender will spot them.

Many of our brokers have been with us since our incorporation in 2004. They know what we look for and know what specialist underwriters look for. Even if it’s just for advice for the future, make the call today.

Forewarned is forearmed. We can arm you with the best possible tools to make your CIS contractor mortgage application successful. Leverage our experience to give you the best foundation upon which to state your case.

Still have questions? Learn more about Construction Industry Scheme mortgages here.