What is the Construction Industry Scheme?

The construction industry scheme or otherwise known as CIS, was introduced by the government in 1971 to help protect construction workers from false employment and minimise tax evasion in the construction industry. All self-employed builders are required to register under one of two tax schemes, PAYE or CIS.

What’s the difference between CIS & self-employed (PAYE)?

Builders in the construction industry scheme have a fixed 20% tax + national insurance deducted automatically from their earnings. They submit a tax return each year and are able to claim back certain allowable expenses. 

PAYE builders pay tax at the correct rate as defined by their tax code and, unlike CIS workers, cannot claim back certain expenses. CIS workers receive a CIS statement every time they are paid as evidence of the tax deduction.

What is a CIS mortgage?

A CIS mortgage, also known as a Construction Industry Scheme mortgage, is a type of mortgage designed specifically for the self-employed who work in the construction industry. The Construction Industry Scheme is a tax system in the United Kingdom that governs how subcontractors working in construction pay their taxes.

CIS mortgages are tailored to accommodate the unique income structure of self-employed workers in the construction industry. Typically, construction workers are paid through the CIS scheme, where deductions are made from their payments for taxes and National Insurance contributions.

This can often result in a difference between the income reflected in tax returns and the actual earnings of the individual. CIS mortgages take into account the income earned through the CIS scheme rather than through the client’s income on their tax returns when assessing the borrower’s eligibility and loan amount.

How much can I borrow for a mortgage as a CIS worker?

The amount you can borrow on a CIS (Construction Industry Scheme) mortgage can vary depending on the lender and their specific criteria. Generally, lenders who do not specialise in CIS mortgages may base the loan amount on your most recent 2 or 3 years of tax returns. This approach can sometimes result in a lower borrowing amount since tax returns may not fully reflect the income earned on CIS stubs.

However, if you work with a lender that specialises in CIS mortgages, they may take into account an average of your most recent 3, 6, or 12 months payslips. This method allows them to consider your actual income earned through the CIS scheme, which can often be higher than what is reflected in your tax returns.

Generally, mortgage lenders offer mortgages based on a multiple of your income, typically around 4.5 times your annual income. However, it’s important to note that this can vary depending on your individual circumstances. Other factors that lenders consider include your credit history, employment stability, existing debts, and monthly expenses.

In addition to the income multiple, you will also need to provide a deposit toward the property purchase.

How is income calculated? 

The calculation of CIS income can vary depending on the lender and their specific criteria. However, a common approach is to take an average of the CIS payslips over a certain period, typically 3, 6, or 12 months. This average is used to estimate the borrower’s annual income.

In some cases, lenders may also consider adjustments for factors like holidays or time off. For example, Halifax calculates based on a 46-week year, assuming a few weeks off for holidays. To calculate the annual income, the average monthly pay is multiplied by 12, divided by 52 weeks, and then multiplied by 46 weeks.

How much deposit do I need for a CIS mortgage?

The amount of deposit required will depend on the lender’s criteria and your affordability. CIS mortgages are available with deposits of as little as 5%, as long as you can afford the repayments and meet the lender’s criteria.

Who is eligible for a CIS mortgage?

If you’re a self-employed tradesman registered & regularly earning through the scheme.

Some mortgage lenders may require that you have been on the scheme for a minimum period of time, for example, 12 months; however, there are lenders that accept from as little as 3 months.

Can I get a CIS mortgage with bad credit?

Having a bad credit score will always make it more challenging to secure a mortgage, however, it’s not impossible. 

There are several factors lenders will consider; for example, how recently you have had adverse credit?

Having a bigger deposit or buying with someone else who has a good credit rating may help your chances of success.

Speak To an Expert

Whether you’ve just had an offer accepted on a property and you’re ready to go, or you’re simply wondering how much you need to save for a deposit, it’s never too soon to reach out.

How does CIS improve your chances of getting a mortgage?

Builders on the CIS have 20% tax + NI automatically deducted from their earnings. Any allowable expenses the builder offsets are not deducted from the CIS statements and will be claimed later when they submit their tax returns. The CIS statements reflect the income before the allowable expenses are deducted, therefore, the income on the tax returns can be substantially lower than the income on the CIS statements.

If you’re a self-employed builder registered as PAYE and not on a CIS, your mortgage will be assessed based on the income on your tax returns. If you’re employed via the CIS, some mortgage lenders will lend based on the earnings on your CIS statements, which can be a lot higher and enable you to borrow more.

To improve your chances of success with a CIS mortgage, consider the following:

Find a Specialist Mortgage Broker: Working with a mortgage broker who specialises in CIS mortgages can be highly beneficial. They have experience in dealing with lenders who understand the unique circumstances of CIS workers and can guide you through the process, increasing your chances of finding suitable mortgage options.

Timing: Choose a good time to apply for a mortgage when you have a steady or higher level of income, especially if your pay varies. Lenders may assess your income based on recent payslips or averaging over a specific period. Applying when you have a consistent income can enhance your borrowing

Employment History: While some lenders may require a minimum of 12 months’ employment history as a contractor, there are others that may be more flexible. However, having a longer employment history can provide you with more options and potentially increase your chances of getting approved for a mortgage.

Larger Deposit: Saving for a larger deposit can strengthen your mortgage application. A larger deposit reduces the loan-to-value ratio (LTV), making you less of a risk to lenders. It can also improve your chances of accessing more competitive mortgage rates and options.

Maintain a Good Credit Score: Lenders consider your credit score as part of the mortgage application process. Aim to maintain a good credit history by paying bills on time, managing existing debts responsibly, and avoiding defaults or late payments. Regularly check your credit report for accuracy and address any issues promptly.

Provide Accurate and Complete Documentation: Ensure that you provide accurate and complete documentation to support your income and financial situation. This includes CIS payslips, bank statements, tax returns, and any other relevant documents. Working with a specialist broker can help you gather the necessary paperwork and present it effectively to lenders.

Which lenders consider mortgages for CIS subcontractors?

Most lenders consider mortgage applications from CIS workers. The key factor is how they assess the income and the documentation required, such as self-employed documents or CIS payslips.

Some lenders that accept CIS payslips include:

  • Halifax
  • NatWest
  • Skipton Building Society
  • Aldermore Bank
  • Kensington Mortgages

What is the process for applying for a mortgage for a CIS worker? 

The mortgage process for a CIS worker generally involves the following steps:

Find a Specialist Broker: Start by finding a mortgage broker who specialises in CIS mortgages, like us at Strive Mortgages. They will have expertise in working with CIS workers and can guide you through the process.

Gather Documents: Collect the necessary documents for the mortgage application. This typically includes CIS payslips, bank statements, identification documents, proof of address, and any other documentation required by the lender. You may also need to provide tax returns for the past few years, although some lenders may focus more on payslips for CIS income assessment.

Agreement in Principle (AIP): Work with your broker to obtain an Agreement in Principle (AIP) from a lender. An AIP is a preliminary indication of the mortgage amount you may be eligible for based on the initial assessment of your circumstances.

Property Search: Once you have the AIP, you can begin your property search. Having a clear understanding of your budget will help you narrow down your options and make more informed decisions.

Ongoing Communication with Broker: Throughout the process, it’s important to keep your broker updated with any new CIS payslips or changes in your financial situation. Varying income can affect the amount you can borrow, so providing updated information ensures that your mortgage application accurately reflects your current circumstances.

Application and Full Mortgage Offer: When you find a property you wish to purchase, work with your broker to submit a formal mortgage application to the chosen lender. The lender will review your application, assess your financial situation, and evaluate the property. If approved, they will issue a full mortgage offer outlining the specific terms and conditions of the mortgage.

How can Strive Mortgages help with CIS mortgages?

Finding the right mortgage provider that assesses your income in the most favourable way possible can have a huge bearing on the rates and borrowing amounts available to you. 

Having a mortgage broker like us, with experience dealing with CIS mortgages, will give you the best possible chance of success on your application. If you’re a CIS worker and interested in buying or re-mortgaging, we’d love to hear from you.

Being a CIS worker can have advantages when applying for a mortgage compared to other self-employed occupations. The flexibility of being able to be treated as both employed and self-employed can work in your favour during the mortgage application process.

Speak To an Expert

Whether you’ve just had an offer accepted on a property and you’re ready to go, or you’re simply wondering how much you need to save for a deposit, it’s never too soon to reach out.

Frequently asked questions about CIS mortgages

Will I require any accountants?

Not if you apply to a lender that specialises in CIS mortgages; if you apply to one that doesn’t, you will need accounts.  

I’ve been subcontracting for less than a year. Can I still get a CIS mortgage?

Yes, while it is a requirement of some lenders to have more than 1 year’s experience as a CIS worker, it’s not essential, although you will have more options with at least 1 year sub contracting.

What interest rates are available for CIS mortgages?

This will depend on your loan-to-value ratio and your own circumstances, along with the market conditions at the time. There are a few high-street mainstream lenders that consider CIS workers, so you may not be restricted to specialist lenders.