CIS mortgages – All you need to know about CIS mortgages

CIS Mortgage Guide

As a contractor in the construction industry, getting a mortgage can be a real headache. Between inconsistent earnings, tax deductions and wary lenders, it can be difficult to get yourself a good deal, even if you’re in a great financial situation!

Now, there’s no specific ‘CIS mortgage’, you’ll be applying for a sole trader/self-employed mortgage, but the Construction Industry Scheme (CIS) makes it a whole lot easier for subcontractors to make their way through the process and get a legitimately good offer, rather than dealing with the faff that many self-employed people have to deal with.

In this article, our experts at The Mortgage Heroes will run you through everything you need to know about CIS mortgages – how to get one, what you need to do to qualify and how they work.

What is a CIS Mortgage?

Ordinarily, getting a mortgage while self-employed comes with some real pitfalls. Most lenders will take your annual income, and multiply it by (roughly) four times in order to calculate how much you can borrow. This can vary from lender to lender, but it’s a good general rule.

As your annual income is calculated after declaring for tax, you might find yourself being stung after accounting for expenses. The CIS makes it so that your gross turnover is considered your income, rather than relying on the self-assessment documents that are reported to HMRC. This means that if you qualify for a CIS mortgage, then you’ll likely be able to borrow significantly more than you would otherwise (a fairer amount that actually considers your full incomings).

The CIS covers a lot of work in construction, including site prep, decoration and refurbishment. You’ll likely qualify if you work in:

  • Site prep – laying foundations, etc.
  • Building work
  • Demolition
  • Decorating
  • Alterations & repairs
  • Installing heating, lighting, water, power or ventilation systems
  • Construction follow-up (cleaning inside the buildings once a project has finished)

There is work that is exempt from the CIS, however:

  • Scaffolding hire (without labour)
  • Carpet fitting
  • Material delivery
  • Non-construction site work (canteen work, etc.)
  • Surveying and architecture
  • Material manufacture for construction

There are some exceptions to these rules. Say, for example, an architect who also helps with the manual building work – they would be covered by the CIS as they’re working in both groups.

It can be really tricky to determine whether or not you’ll qualify for a CIS mortgage. We recommend getting in touch with specialists who can advise on whether or not you’re eligible, and how much you can borrow.

What are the Benefits of a CIS Mortgage?

CIS mortgages are perfect for construction workers who either don’t have three years of accounts, or who have declared a low net profit on their tax return.

Get a Higher Mortgage Ceiling

By seeking a CIS mortgage, you might be able to snag yourself a significantly larger mortgage than you otherwise might have.

Say, for example, you earned £60,000 in a year, but after declaring your travel expenses and working with your accountant, you end up declaring £38,000. A mortgage lender would take the £38,000 and allow you to borrow a maximum of £152,000 (£38,000 x 4).

In the same situation, but through the CIS, you’d declare your gross income before tax, making your buying power a hefty £240,000 (£60,000 x 4) at a minimum; that’s an increase of £88,000 – not bad!

One Year vs. Three Years of Accounts

Lots of lenders will request (on average) 3 years’ accounts for self-employed people or contractors. This can be frustrating, as it can severely delay your mortgage application. With a CIS mortgage, you’ll usually only need to show your gross income from the last 12 months, meaning you can get yourself on the ladder much sooner.

Deposits in CIS Mortgages

A CIS mortgage isn’t anything special, it’s still a normal mortgage, with the only difference being that your gross income is considered.

This means that the deposit that you’ll need will be exactly the same as any other mortgage. If you’ve got a strong employment history, you might be able to find a mortgage with a small deposit of 5%, however, we always recommend trying to overshoot the minimum deposit of any mortgage. If possible, saving for a 10-20% (or more) deposit will always work in your favour, putting you in prime position to shop around for a more favourable deal.

Depending on the size of house that you’re after, you could even decide to borrow less than your maximum allowance, making your deposit a larger percentage and putting you in an even stronger position.

Apply for a CIS Mortgage with The Mortgage Heroes

Phew, that’s a lot to take in! At The Mortgage Heroes, we help people working in construction to find the most suitable mortgage all year round. It’s completely normal to get a little lost when looking for a mortgage, especially if you’re trying to fulfil specific criteria (such as the CIS).

For help finding the most suitable mortgage, or to get a little more information, contact our heroes today! We’re available seven days a week, so there’s never a bad day to give us a call!

We can help you find a mortgage. Contact a mortgage hero today.

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*Your home may be repossessed if you do not keep up repayments on your mortgage.

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