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When it comes to mortgages, contractors who are part of the Construction Industry Scheme (CIS) have a great advantage when it comes to getting a mortgage when self-employed.
A “CIS mortgage” isn’t actually a specific mortgage product, the same way that there’s no “self-employed mortgage”.
When we mention CIS mortgages, we’re referring to the way in which lenders will calculate your income as a CIS contractor.
If you’re a CIS subbie, some lenders that will consider using your gross income, as shown on your payslips, rather than your net profit from self-employment as shown on your tax returns.
This means that your expenses might not need to be deducted before working out the mortgage lending available to you.
For lenders to calculate your mortgage lending based on your gross CIS income, you’ll of course first need to make sure you’re part of the Construction Industry Scheme.
Contractors can register for CIS if:
Subcontractors can register for CIS if if you do construction work for a contractor.
If you’re eligible but not yet registered, it may be in your best interest to register as you’ll have a 20% rather than 30% deduction.
You’ll need to be part of the construction industry, but you do not necessarily need to be in a physical role (although you may be exempt if you ONLY carry out non-labour roles).
More information can be found on the Gov website.
As a CIS contractor, your tax will usually be deducted at source.
In other words, the company that you’re contracting for will settle your tax with HMRC before paying you the net income.
This will be reflected on your payslips.
If in doubt, your accountant (if you have one) can confirm whether you are or are note a CIS contractor.
Unfortunately not.
There are a handful of lenders that’ll consider using your gross CIS income for mortgage affordability.
However, this doesn’t necessarily mean that you’ll be limited to very niche specialised lenders with much higher interest rates.
At Rosehill, we take pride in building long-term relationships with our clients. We don’t see ourselves as just a mortgage broker, but rather a trusted partner who will be with you every step of the way.
At Rosehill, we take pride in building long-term relationships with our clients. We don’t see ourselves as just a mortgage broker, but rather a trusted partner who will be with you every step of the way.
Can lenders consider your gross CIS income if you operate through your own limited company?
This will depend.
Some lenders will treat you as a limited company director, whereby different income calculations would apply, however others can still consider using your gross CIS income.
Naturally, a question we always get asked!
A good rule of thumb would be to multiply your gross annual CIS income by 4.5x. You can also add a second applicant’s income to this if you’re buying with someone.
However, you may be able to get a higher level of lending than this, depending on overall income and deposit size.
That being said, it’s not always as simple as this – this is just a rough guidance. You can always get in touch with us to discuss maximum lending.
Let’s look at an example of how a CIS mortgage (or the way in which lenders using your gross CIS income) can benefit you when compared to a standard self-employed mortgage.
For the purposes of simplicity, we’ll assume the lending is 4.5x income.
Bruce, a self-employed electrician, is currently working on a long-term contract under the CIS scheme, earning him a gross contract value of £55,000. Bruce also carries out some private work, earning him another £15,000 on the side.
Having a tax efficient accountant, Bruce is therefore advised to deduct his work related expenses, which results in a reduced tax bill.
Bruce’s net profit from self-employment (after expenses) is £40,000.
Lender 1 will calculate Bruce’s lending using his net profit from self-employment and is happy to offer £180,000.
On the other hand, Lender 2 will calculate Bruce’s lending using his gross CIS income and is happy to lend £247,500 even without including the additional £15,000 income on the side.
Your typical lender would want 2-3+ years trading where you’re self-employed.
Subbie-friendly lenders will usually want 12 months’ trading as a minimum.
However, it is possible to get a CIS mortgage with less than 1 year. Lenders will typically be looking at previous experience to be comfortable lending on this basis.
The minimum deposit you’ll need is 5%, as a CIS mortgage is not a separate product to a regular mortgage.
However, the higher the deposit you have typically results in more lenders and better rates becoming available.
You’ll need the standard documents as with any mortgage, but in terms of proof of income you’ll typically need to gather between 3-12 months’ worth of payslips.
We focus on building long-lasting relationships with clients.
We therefore charge a reduced fee for our existing client remortgages.
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As a mortgage is secured against your home or property, it may be repossessed if you do not keep up the mortgage repayments. Think carefully before securing any other debts against your home or property. The Financial Conduct Authority does not regulate commercial buy to lets and some forms of commercial mortgages. You may have to pay an early repayment charge to your existing lender if you re-mortgage
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