What is a CIS Mortgage?

Hello and a very warm welcome to you to today’s Mortgage Month podcast. We are finishing the contractor series today, with a very important topic. We’re talking about CIS mortgages.

These are mortgages designed specifically for those working in the Construction Industry Scheme (CIS) – you may not realise that there are special mortgages just for you.

I’m here with the lovely Tessa again, who’s going to be asking me your questions.

What is a CIS mortgage and how does it work?

The CIS mortgage is specifically for the Construction Industry Scheme, designed for contractors on that scheme and self-employed individuals who work under it.

Perhaps you’re wondering about whether to start working in this scheme. You actually get paid with traditional pay slips, even though you are technically self-employed, and we can take those into account.

Often, if we find the right lender, we can actually class you as an employed individual – which can make it much easier to get you a mortgage for the right amount of affordability.

What does the CIS scheme mean?

The Construction Industry Scheme was set up by HMRC in the UK to regulate payments between contractors and subcontractors and make sure people pay their tax. One of the positives of this scheme is that it has helped people get mortgages more easily. They also get their tax paid in more simply, rather than having to worry about it themselves.

So, if you’re working in construction related services you can check if you’re eligible. There is a CIS helpline and there’s information on the HMRC website. Anything construction related, like building, decorating, electrical work or demolition, could potentially be eligible for the scheme.

Some activities like professional architectural or surveillance services aren’t included, so it’s worth checking if your particular area of subcontracting is there. If it is, it may well be worth registering. You’ll need to have some information to hand, like your National Insurance number and your unique taxpayer reference, details of your business and contact details, but as I say, the benefits of joining it could be huge when getting a mortgage.

Who is eligible for a CIS mortgage?

You have to be registered with the Construction Industry Scheme, and be receiving payments from contractors. They will deduct your tax under their CIS rules. You need to have a history of consistent work and to provide evidence of your income through pay slips and bank statements.

Even if you’ve got adverse credit or a slightly lower deposit, you can still get a mortgage under this scheme depending on the criteria.

Can self-employed workers apply for a CIS mortgage?

Yes, this is exactly who they’re tailored for. Lenders understand the unique nature of people working under the Construction Industry Scheme and they change their criteria around how they look at your income.

When you’re self-employed, normally we rely just on your accounts and what you declare on your tax return. For the self-employed looking to get a mortgage, you need to remember that when you’re submitting your tax return each year.

The difference with Construction Industry Scheme employees is that we can look at your pay slips and bank statements. From there we can generate an employed income and key you in with some lenders as an employed individual. Often that means that you can borrow more than your typical self-employed mortgage.

What are the benefits of a CIS mortgage compared to a regular mortgage?

The main positive is the bigger amount of borrowing – the higher borrowing potential. You should have more affordability, because we’re looking at your gross income.

One of the hardest things for self-employed individuals is that when you’re employed, lenders look at your gross pay. Employed people still pay tax and National Insurance, but lenders focus on salary before tax. When you’re self-employed, they focus on your earnings after tax – your net profit – and that can be a lot lower for some people. It can be a real frustration.

With Construction Industry Scheme mortgages, again lenders focus on gross income. That is a huge positive. You’re less reliant on your full accounts, so it should be a simpler process with less paperwork to gather. It’s an area of the market I really love because it actually identifies people’s individual needs. It would be lovely if there were mortgages for every single area of the market, but this is a really positive one.

Are there any potential drawbacks or risks associated with a CIS mortgage?

It’s just that there’s fewer lenders on the market that tailor their solutions. There’s one lender in particular that I typically start with for a Construction Industry Scheme worker because they are so good – that’s Halifax.

There are others out there, but Halifax has a great calculator that allows us to see what they would take as your employed income. It’s a great place for a broker to start. But you’re going to have less choice.

As I’ve said on other episodes, every lender lends a completely different amount, so it’s not just about that salary figure. What does the lender do with it? Do they multiply it by four or 4.5, five or 5.5?

You’re going to have less choice if you’re looking to take advantage of a CIS mortgage, and you need to be organised with your documents. We don’t just need your pay slips, we need your CIS statements and your bank statements as well. You’ve just got to give us a bit more paperwork.

But you haven’t got to gather all your accounts and tax documents, so it’s almost a pro and a con.