What is a CIS Mortgage?
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What is a CIS Mortgage?
We explore CIS mortgages with Lee Gathercole and Neezam Romjon.
Approved by The Openwork Partnership on 14th February 2023
What is a CIS mortgage and how does it work?
CIS is the Construction Industry Scheme, and a CIS mortgage is a mortgage tailored to people that work under the heading of CIS. It’s basically a mortgage that suits self-employed contractors within the construction industry.
It’s designed to accommodate the unique position of a CIS contractor. These are people that are considered as self-employed but also receive payslips. Their tax and national insurance is deducted by their employer.
While regular mortgages assess gross income, CIS mortgages consider certain types of net income and take a slightly different approach to confirming affordability.
Who is eligible for a CIS mortgage?
These are for construction workers or any business in construction work. You can register for the Construction Industry Scheme, CIS. If you fall under the scheme you would then qualify for a CIS mortgage.
Can self-employed workers apply for a CIS mortgage?
Just for clarity, when we say CIS mortgage, it’s not a special product. It’s just about positioning an application for a CIS worker in the right way, with the right kind of lender.
If you’re not approaching lenders that are favourable towards CIS contractors, for example, they will automatically treat you as self-employed.
So in terms of this question, self-employed workers can apply for any mortgage. In terms of how their income is considered by a lender, for a sole trader it will be more focused around net profit for the previous two or three years. They’ll look at the sustainability of that income going forward and decide how much they’re willing to lend based on that income.
A CIS contractor sits somewhere between being self-employed and employed. It’s very niche. If you’re self-employed, get some advice to make sure you’re positioning your application and your income with the right lender in a suitable way.
What are the benefits of a CIS mortgage compared to a regular mortgage?
Certain banks are more favourable to CIS contractors. Each lender may assess your income in different ways. Some banks will simply class you as self-employed and request your tax returns or your self-assessments. Some might even class you as employed.
But others are more geared up to CIS and will assess your invoices for the last six months or or a year. Using your invoices is usually more beneficial in terms of how much income you’re able to evidence.
The benefit, then, of going with a CIS-friendly lender is there can be a huge difference in how much you can borrow.
Are there any potential drawbacks or risks associated with a CIS mortgage?
Let’s compare a CIS applicant with someone employed on a permanent basis with a straightforward, basic salary. A CIS contractor is going to have to be more careful about who they approach to get the mortgage they want.
Meanwhile an employee on a basic salary knows they can approach most banks or building societies and they’ll just take their income based on their payslips. Most lenders won’t use your CIS invoices or payslips. They’ll look at your tax returns for your net profit – that’s likely going to be a lot lower than your invoices will show.
So the big drawback is the range of lenders. Lenders that will be more favourable to you as a CIS applicant are limited.
You might also be more limited with criteria. A CIS applicant often has to have been in the industry for a couple of years. If you don’t have that track record behind you it can be a bit more challenging. That might push the rate you pay a little bit higher.
To get the best possible outcome, talk to a mortgage advisor, as we’ll know which lenders will suit your specific situation.
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How do interest rates and fees associated with a CIS mortgage compare to a traditional mortgage?
The good news is that there are a few high street banks that offer mortgages to CIS workers, so you won’t lose out in terms of interest rates or fees.
It could well be that you have limited options, but they’re from a pool of high street banks where rates don’t differ too much.
If your credit file isn’t up to scratch or you have the odd missed payment or default that could make it more complicated and could impact your interest rate. But generally there isn’t much difference between a traditional mortgage and a lender who’s CIS-friendly. They’re on a par.
What documents are required to apply for a CIS mortgage?
You typically need to provide the last six months’ CIS payslips or invoices, the last three months’ bank statements and you may need to provide two years’ HMRC tax calculations or tax year overviews. If you do a self-assessment or you’ve got an accountant they’ll provide you with this.
You will also need proof of ID – your passport and driving licence is usually enough. You also need proof of address. If your bank statements have your address on them, great, you can tick that off.
You will also need an updated copy of your credit report to prove that you haven’t got any undisclosed commitments, debts or missed payments in the last six years.
If you have, that’s fine, but we just need to make sure we’re giving you the right advice. Those documents generally help lenders evaluate your income and how stable it is, to get a clear view of your overall financial situation.
How can someone find a reputable lender who offers CIS mortgages?
It’s a bit of a minefield finding a mortgage, full stop. If you’re a First Time Buyer, or you have a blip on your credit file, then adding CIS into the mix is just another complication. It is particularly difficult to find the right bank that’s favourable to your situation.
Having an independent mortgage broker, and more specifically one who specialises in CIS mortgages, is really key. There are many variables – your deposit, your credit history, how many invoices, how long you’ve been part of the CIS scheme… so it’s important to use a mortgage broker who is experienced in CIS mortgages.
Any other unique features or requirements of a CIS mortgage that borrowers should be aware of?
In terms of unique features or requirements, there might be certain things you need as a borrower – such as the ability to make overpayments or having flexibility to exit the mortgage whenever you want. You might want your legal fees to be paid.
A suitable advisor will be able to understand and explore what’s important to you, alongside how much you need to borrow and getting the most competitive deal.
As always, lenders will issue you with terms and conditions as part of the mortgage offer. Make sure you’re fully clear on what you can do and what your limitations are. An advisor should go through all that with you before you apply.
What else do we need to know about CIS mortgages?
If you’re a CIS worker and you’re thinking about buying your first home or next home, preparation is key. Have a conversation with a mortgage broker who’s experienced in CIS as early as possible.
We’ll prepare you for your mortgage application and explain what documents you need. You might need 12 months’ invoices or to get your self-assessments up to date. There’s lots of things that a mortgage broker can help you with, so don’t leave it too late. Speak to us as soon as you’re thinking about it, as probably more documents are needed than with a traditional mortgage when it comes to CIS workers.
Your home may be repossessed if you do not keep up with your mortgage repayments.
Approved by The Openwork Partnership on August 31, 2023
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS
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