Set up by HMRC, the CIS scheme was created to allow registered contractors to deduct money at source from the payments they make to subcontractors. This amount is paid to HMRC which in turn is counted toward the amount of income tax and NI that the subcontractor is expected to pay. Usually, the contractor will supply payslips to the subcontractor demonstrating gross and net income.
This isn’t mandatory, but if subcontractors don’t become part of the CIS, then their deductions will be made at a higher rate.
Click here to read the government’s CIS guide for contractors.
CIS Mortgages
As a construction industry individual looking for a mortgage, you’ve no doubt come to realise that not all lenders do in fact offer CIS scheme mortgages. Plus, those who do are likely to have different lending criteria. But, as a rule of thumb, those who do, allow the subcontractor to prove their income using the gross amount as demonstrated on their payslips. This is instead of providing an SA302 or business accounts. This would be a great perk for workers with less than two years’ trading under their belt.
This isn’t a one size fits all scenario, but rather an application whereby the lender will assess applicants on a case by case basis. To apply for a CIS mortgage, you will need to provide your payslips for the last 3-6 months and they will be used to calculate your annual salary which in turn allows the lender to work out the maximum amount of borrowing.
How much can I borrow?
This varies from lender to lender, but will be in the region of your annual salary multiplied by 4 or 5 times that amount. At Birmingham Money, we have expert advisors who can take you through the complete application, which would include keeping you informed of the different lenders’ criteria. As expected, the lender will look through your application with a fine toothed comb to ensure it’s affordable.
What deposit do i need for a CIS mortgage
Always bear in mind that the greater the deposit, the more favourably the lender will view your application, also allowing for access to better rates of interest. That said, aspire to achieve a minimum of 10%.
What do i need to qualify for a CIS mortgage?
If you are registered with the CIS scheme, then your payslips should be sufficient. However, if you’re not a registered subcontractor and are having the higher rate of tax deducted, then it’s highly likely that you will need to provide a year’s worth of accounts or perhaps an SA302. The declared figure would be the one used for the mortgage calculation.
In years gone by, self-employed people would have had to have provided at least two or three years’ accounts in order to even be considered for a mortgage. However, it is now possible that a lender may consider just 12 months. You will probably need to show 12 months of continuous employment (which may show 6 months of said contract remaining), or, alternatively, demonstrate two years’ service in the same arena of employment. Lenders are quite lenient in that they understand that a contractor may have a gap in their employment generally because of a holiday or being in-between contracts.
As mentioned earlier, because so many people these days are self-employed and working patterns are changing too, lenders are having to reassess their own sometimes archaic way of working and reconsidering their stance on their lending criteria.
Will bad credit affect my CIS mortgage application?
Already, the pool is a small one offering a CIS mortgage, so to add to that, a CIS mortgage with a bad credit rating, the pool will shrink even further. But, as always, Birmingham Money have your best interests at heart and within their repertoire, will be a number of lenders who are willing to accept an application. They will assess each case individually and may potentially take into account the gross figure on your payslip.
What mortgage rate will i achieve?
It is always best to speak to one of our specialist advisors, as it’s not all lenders are able to offer CIS mortgages. That said, we have access to an enormous range of lenders, we’re not biased towards any particular one, so can discuss your requirements and go from there. We can give an indication of your potential payment and rate ahead of the mortgage being applied for.
Don’t fall into the trap of attempting to source this by yourself, otherwise every time you apply for a CIS mortgage, with a high street lender who is not specialised in this area, your credit rating will be affected thus damaging your ability to get one in the future.