The Construction Industry Scheme allows eligible sole traders to evidence their income more accurately to mortgage lenders. Speaking to an expert broker will help you carefully choose the lender who best understands your income and find the best mortgage available to you.
Mortgages for CIS Contractors in the UK
As a self-employed CIS contractor, applying for a mortgage can be challenging. Lenders are often hesitant to offer mortgage to self-employed individuals because their income can be difficult to verify. However, the good news is that being a CIS contractor can make getting a mortgage much easier.
How CIS Contractors Can Get a Mortgage
Here are five things that CIS contractors should keep in mind when applying for a mortgage:
One: Pre-Tax Gross Income
CIS contractors have the ability to present their earnings as pre-tax gross income, rather than final post-tax profit. This makes it easier for certain lenders to view CIS contractors as employed, and require less stringent checks when establishing their income.
Two: Borrow More
Most lenders will use your annual income to determine how much they an lend you. Generally, lenders will offer between 4.5 and 5.5 times your annual income. However, if you are offsetting your expenses from your annual income, then these expenses will also be deducted prior to your loan being calculated.
Three: One Year of Accounts
Most lenders will require self-employed individuals to provide evidence of three years accounts, which can be problematic. But, as a CIS contractor, most lenders will only request evidence from the past twelve months. This is helpful if you’re a new business and don’t yet have 24-36 months worth of accounts.
Four: Preferential Rates
Many lenders offer preferential deals to individuals who have higher incomes. Being able to prove a higher income to the lender could get you a better interest rate.
CIS is exclusively for self-employed workers in the construction industry. You don’t have to be a construction worker to be eligible, rather you must work in a sector which is connected to the industry such as an architect or planner.
Let’s consider this example to better understand how CIS works:
Martin earns £50,000 per annum from his plumbing business. Martin has worked with an accountant and identified £20,000 worth of expenses which he could offset that year to save money on his tax bill. When applying for a mortgage, the lender identifies that Martin has earned £50,000 but had £20,000 in expenses. The lender assumes Martin’s take-home earning were £30,000 and then uses this figure to calculate what they can offer him on a loan.
However, if Martin were to apply for a mortgage as a CIS contractor, the lender would use his annual figure of £50,000 instead. This would be evidenced by his CIS payslips, as opposed to a detailed look at his company accounts.