Navigating the world of mortgages can be daunting, particularly if you’re a self-employed individual or a Construction Industry Scheme (CIS) contractor. Applying for a CIS mortgage comes with its own set of unique challenges, which we’ll cover in this blog post. By familiarising yourself with this information, you’ll be better equipped to understand the mortgage process and make informed decisions.
Understanding the Basics of a CIS Mortgage
Before diving into the specifics, it’s crucial to grasp what a CIS mortgage entails. The Construction Industry Scheme (CIS) is a tax deduction scheme in the UK for contractors and subcontractors in the construction industry. If you’re a CIS contractor, lenders will assess your income differently from salaried employees. The good news is, many lenders are willing to consider your gross contract income, rather than the net income on your tax return, potentially allowing you to borrow more.
Understanding Eligibility for a CIS Mortgage
It’s important to note that CIS mortgages aren’t suitable for everyone. They’re specifically designed for people who work within the construction industry under the Construction Industry Scheme (CIS). If you’re a subcontractor and you get paid after-tax deductions through the CIS, you’re a prime candidate for this type of mortgage.
Eligibility usually hinges on a few key factors. Firstly, you must be registered with the CIS and have a UTR (Unique Taxpayer Reference) number. You should also have a track record of consistent work, typically demonstrated through your invoices or payslips. Lenders usually request between 3 to 12 months of statements to verify your income.
A decent credit score is another factor that could enhance your eligibility. While some lenders will consider applicants with poor credit, having a good credit history will invariably offer you access to more favourable rates and terms.
Lastly, as with all mortgages, you’ll need to have a deposit saved up. The exact amount varies between lenders, but some CIS mortgages may allow for a lower deposit than conventional self-employed mortgages. As ever, individual lender requirements may differ, so it’s always worth seeking advice from a CIS mortgage specialist.
Recognition of Gross Income
One of the main advantages of a CIS mortgage is that it allows for gross income to be recognised. While many mortgage lenders focus on the net profit or salary drawn from a company, CIS mortgages are based on the total income received before tax. This is particularly beneficial for those who keep their personal income low for tax efficiency. With a CIS mortgage, your borrowing capacity may be significantly increased.
Flexible Verification of Income
Another significant benefit of CIS mortgages is the flexibility in income verification. Traditional mortgages often require a history of accounts, with many needing three years of income statements. However, with a CIS mortgage, lenders are more lenient. They typically ask for 3 to 12 months of CIS statements. This is beneficial for those who have recently become self-employed or don’t have a lengthy income history.
Deductions Consideration
The nature of work in the construction industry often involves considerable business expenses, which can lower your taxable income. Fortunately, lenders offering CIS mortgages understand this and are willing to consider these deductions. They’ll look at your gross income, before deductions, which helps to counterbalance this issue and increase your borrowing capacity.
Proactive Representation to Lenders
With a CIS mortgage, specialist brokers often represent you. These brokers have an in-depth understanding of the industry and your unique income situation. They can proactively argue your case to lenders and help you secure the best possible mortgage deal. Their services are invaluable, particularly if your circumstances don’t fit the traditional mortgage mould.
Access to Specialist Lenders
One of the more understated benefits of CIS mortgages is access to specialist lenders. These lenders have a thorough understanding of the construction industry and offer mortgage products specifically tailored for CIS contractors. They understand the potential income fluctuations in your line of work and are more prepared to offer favourable terms compared to traditional lenders.
Potential for Lower Deposit
Lastly, some CIS mortgages allow for a lower deposit compared to traditional self-employed mortgages. This could mean you can get onto the property ladder sooner. Bear in mind that the exact amount needed will depend on individual circumstances and the specific lender’s requirements.
Where to Get CIS Mortgage Advice
Securing the right mortgage is crucial, especially for CIS contractors. Therefore, it’s essential to get advice from the right sources to make informed decisions that align with your financial situation. Here are some of the places where you can obtain CIS mortgage advice.
Mortgage Brokers Specialising in CIS Mortgages
The first and potentially most valuable source of advice comes from mortgage brokers who specialise in CIS mortgages. These professionals understand the intricacies of the Construction Industry Scheme and can provide tailored advice based on your income, contract type, and overall financial profile. They have in-depth knowledge about lenders who are CIS-friendly and can guide you towards those most likely to offer you a suitable deal. A good mortgage broker will assess your eligibility, help you gather the necessary paperwork, and support you through the entire application process.
Online Platforms and Forums
You can also find valuable advice on online platforms, including websites dedicated to financial advice for self-employed individuals and contractors. Online forums can also be a useful source of information where you can learn from others who have been in your shoes. However, always take online advice with a grain of salt and cross-verify the information. When it comes to something as critical as a mortgage, personalised professional advice is unbeatable.
Professional Networks
Consider reaching out to other professionals within your industry. Other CIS contractors who’ve already navigated the mortgage process can share their experiences, recommend brokers, and provide useful insights. Additionally, accountants who work with CIS contractors often have useful knowledge about the mortgage process and can guide you in the right direction.
In conclusion, applying for a CIS mortgage as a contractor or a subcontractor in the construction industry comes with several benefits. It offers a more tailored and understanding approach to your unique financial circumstances. Armed with this knowledge, you can approach the mortgage application process with confidence. Always seek advice from a mortgage advisor who is well-versed in CIS mortgages to help you navigate this complex process.
