Construction Industry Scheme (CIS) Mortgages
Paul Holland sits down and explains everything CIS mortgages.
What is a CIS mortgage?
CIS stands for Construction Industry Scheme. A CIS mortgage is essentially the same as other mortgages, but there are certain differences for people on a CIS contract. It’s all to do with how the lenders set an income figure for the customer.
If you are on a CIS contract, you have two options for your mortgage application. You can go down the standard route as a Self-Employed applicant, or you can opt to look for a lender who will assess your income on a CIS basis.
Who is eligible for a CIS mortgage?
Being on a CIS contract is the starting point and you will usually need some level of industry experience. For a lender to look at your income on a CIS basis they will want to see that you haven’t just gone from being, say, an IT technician to a tradesperson overnight. They want to see a track record where you have been running your contracting business for perhaps a year, maybe two.
Generally, they’re looking to confirm that you have tax deducted at source. You will charge your contracting client a gross figure, then they deduct 20% income tax at source, paying the net amount into your bank. It’s almost bridging the gap between self-employment and employment, which is why some lenders offer special CIS mortgage deals.
How does the application process work for a CIS mortgage?
There’s no difference in the process itself. It’s the way the income figure is used towards affordability checks that’s different for a CIS worker compared with a standard Self-Employed customer.
If you’re employed, a lender will take your monthly income and multiply by 12 – but on a CIS contract things work slightly differently, as we’ll come on to.
What documents do I need for a CIS mortgage?
On top of the standard requirements – bank statements, passport, driving licence, proof of address and proof of deposit – other information specific to this will be CIS invoices, which are almost like payslips. They show the gross earning amount for the week or month, the tax deducted and the net figure that goes into your bank account.
It can be difficult for people in this situation to get all the invoices together – especially where you get paid weekly. You will often be asked for a minimum of 13 weeks of records, so it pays to be well prepared when you’re ready to get a mortgage.
How can I strengthen my CIS mortgage application?
As a CIS contractor you will need a clear track record, because your income is not seen as being as secure as a permanent employed role. Consistency is very key, ideally with similar levels of pay going through on a weekly or a monthly basis.
A very variable income makes it more difficult for the underwriter to devise a reliable income figure for your application.
How much can I borrow for a CIS mortgage and how much deposit do I need?
The deposit is the same as with other income types. Currently, you can purchase with as little as a 5% deposit. The amount you can borrow will be worked out in a similar way to everyone else. The lender will apply a multiple to your income and factor in your commitments and monthly expenditure.
As a CIS contractor, your lender will try to find an average weekly gross income figure based on the last three months. They will then annualise that figure to calculate an annual salary.
So, say you have 13 weekly pay slips. The lender will add them up, divide the total by 13 to get your average weekly figure, and then multiply it by 48 – assuming that you’re going to take four weeks out of work on holiday every year. That total figure is what they will punch into the calculator to assess your maximum loan.
Do many mortgage companies lend to CIS workers?
Not in the grand scheme of things, no. There are a few, but probably only two or three that have competitive rates compared with the rest of the market. So if you need to use the CIS option, generally speaking, there won’t be many lenders on the table.
Can I get a CIS mortgage with bad credit?
Yes, is the easy answer to that. ‘Bad credit’ is a very broad term. It could mean one missed payment, or it could mean defaults or an IVA – and clearly the latter two are much more serious. Generally speaking, though, it’s more difficult to get a CIS mortgage if there are any restricting factors. So if you have a fairly serious credit situation it will reduce the number of lenders that are available to you – from an already small pool. It might be possible to get you a mortgage, but there will be a lot less choice.
What are the pros and cons of a CIS mortgage?
The biggest benefit of a CIS mortgage is quite simply that the income figure the underwriter arrives at via the CIS route is almost always more than it would be via the Self-Employed route. The maximum loan amount will likely be more with a CIS mortgage – and that’s why people want to do it.
The cons, on the other hand, are the restrictions. Firstly, we’re starting the process with fewer lenders at our disposal. If you then have other issues like adverse credit or other criteria glitches, that reduces the lenders even further. That tends to mean that interest rates are usually higher than they might be elsewhere.
What other advice do you have on CIS mortgages?
Preparation is key. Have your documents to hand and try to speak to someone as early as you can in the process. For a CIS mortgage it’s important to make sure that your statements marry up with the income going into your bank account. That might sound strange, but generally speaking, people that get paid monthly employment payslips usually know their net figure and quickly pick out whether that’s what’s being paid into their account.
But CIS is more complicated. You might get paid different amounts on a weekly basis, and you might not necessarily have time to check up on the details. If there is any discrepancy it can make the mortgage process more difficult. So if you’re putting aside your documents, just go one step further and check the invoices marry up with the amounts going into your bank account.
Your property may be repossessed if you do not keep up with your mortgage repayments.