Understanding Mortgages for Construction Industry Scheme (CIS) Applicants

The Construction Industry Scheme (CIS) plays a significant role in the UK’s construction sector, affecting how payments are made to subcontractors and contractors. For individuals under the scheme, applying for a mortgage can feel like a daunting process. However, with the right guidance and expertise, securing the right mortgage is achievable. In this blog, we will explore what the CIS entails, how it operates, and how mortgage lenders assess applicants under the scheme.

What Is the Construction Industry Scheme (CIS)?

The Construction Industry Scheme was introduced by HM Revenue & Customs (HMRC) to regulate payments from contractors to subcontractors in the construction industry. Its primary goal is to ensure the correct amount of tax is deducted at source for subcontractors who are self-employed or operate as sole traders.

Under CIS, contractors are required to:

• Verify subcontractors’ details with HMRC.
• Deduct 20% from payments for subcontractors registered under the scheme or 30% for those not registered.
• Provide subcontractors with monthly payment statements outlining deductions made.
• Pay the deducted amounts to HMRC.

Subcontractors can claim these deductions back or offset them against their tax liabilities when filing their self-assessment tax return.

How Does CIS Affect Mortgage Applications?

While the CIS ensures a streamlined approach to tax compliance, it introduces unique challenges for subcontractors seeking a mortgage. Many subcontractors are technically self-employed, which means lenders assess their income differently than they do for PAYE employees.

Fortunately, being part of CIS has advantages, as lenders increasingly recognise the scheme’s structure and accept CIS payslips as proof of income. Let’s break down the key considerations for CIS applicants:

1. Income Assessment
Mortgage lenders typically require proof of income to evaluate affordability. For CIS applicants, this can be done in two ways:

• Using Gross Income: Some lenders will accept the gross income shown on your CIS payslips rather than requiring years of accounts or tax returns. This is beneficial for subcontractors who may not have extensive financial records but consistently earn through the scheme.
• Using Net Income: Alternatively, some lenders rely on the net income declared on your self-assessment tax return. This can reduce borrowing potential if substantial business expenses are deducted.

2. Documentation Requirements
Applicants under CIS should prepare the following documents to support their mortgage application:

• Recent CIS payslips (typically the last three to six months).
• Bank statements showing income deposits.
• Tax returns or SA302 forms (if required by the lender).
• Proof of identity and address.

3. Deposit and Loan-to-Value (LTV)
CIS applicants often face the same deposit requirements as traditional borrowers. A higher deposit may enhance your borrowing options and access to more competitive interest rates. Standard deposit requirements range from 5% to 20%, depending on the lender and your financial circumstances.

4. Credit History
As with any mortgage application, lenders will review your credit history. Demonstrating a strong credit score, on-time payments, and a low debt-to-income ratio will improve your chances of approval.

How Mortgage Lenders View CIS Applicants

The good news is that many mortgage lenders now have specialist criteria tailored for CIS workers. Here’s how they generally approach these applications:

• Positive View of Regular Income: Regular payments under CIS are often viewed as a steady income stream, making it easier for lenders to assess affordability.
• Flexibility on Accounts: Lenders who understand CIS may not require full trading accounts or multiple years of tax returns, especially if recent payslips clearly show consistent income.
• Specialist Lenders: Some lenders specialise in mortgages for contractors and CIS workers, offering bespoke solutions to meet your needs.

Overcoming Common Challenges

While CIS applicants enjoy certain advantages, there are challenges to consider:

• Misconceptions About Self-Employment: Not all lenders fully understand the nuances of CIS, which can lead to inconsistent treatment of applications. Working with a mortgage broker experienced in specialist lending can help navigate this.
• Deposit Requirements: If your financial profile is complex, you may need a higher deposit to mitigate perceived risks.
• Tax Returns: If using tax returns, ensure they accurately reflect your income and are up-to-date. Any discrepancies could delay your application.

  

  
  

How Mortgage321 Can Help

At Mortgage321, we understand the unique circumstances of CIS workers and have extensive experience in securing tailored mortgage solutions for subcontractors and contractors. Here’s how we can support you:

• Specialist Knowledge: Our team is well-versed in lender criteria for CIS applicants, ensuring your application is presented in the best possible light.
• Access to Specialist Lenders: We work with a wide range of lenders, including those who specialise in mortgages for CIS workers, giving you access to competitive rates and terms.
• Personalised Guidance: We provide clear, jargon-free advice, guiding you through every step of the mortgage process.

Final Thoughts

Being part of the Construction Industry Scheme doesn’t have to be a barrier to homeownership. With the right preparation and expert guidance, CIS applicants can secure the mortgage they need to achieve their property goals.

If you’re a CIS worker ready to explore your mortgage options, get in touch with Mortgage321 today on 01255 440142. Our team is here to help you navigate the process with confidence and ease.