If you’re a Construction Industry Scheme (CIS) subcontractor, it can be tricky to get the mortgage that you need. As a contractor, your income may not be as steady as someone who is employed full-time. And, lenders may treat your earnings as if you were a self-employed worker rather than someone who is paid a ‘day rate’.
However, there are lenders out there who specialise in CIS contractor mortgages, and we have wide experience in helping subcontractors to get the home loan that they need.
If you’re a CIS subcontractor, you sit in the middle ground between being truly self-employed or permanently employed.
Under the Construction Industry Scheme (CIS), contractors deduct money from a subcontractor’s payments and pass it to HM Revenue and Customs (HMRC). These payments count towards a subcontractor’s Income Tax and National Insurance contributions.
The problem for many subcontractors is that many mortgage lenders treat CIS subcontractors as self-employed. This means that, before considering a mortgage application, they will ask to see at least two- or three-years’ accounts.
Firstly, this may not be possible if you have been subcontracting for less than a year. You may simply not have a full year’s accounts.
Additionally, these accounts may not reflect your true income, depending on how your accounts have been prepared by your bookkeeper or accountant.
In this case, a specialist CIS contractor mortgage could be ideal. To qualify for this type of mortgage, you need to be:
When it comes to producing your accounts, your bookkeeper or accountant will usually advise you to keep all your receipts and to record all your business-related expenses. This has the effect of reducing your profits and your tax liability.
However, this can cause a problem when it comes to applying for a mortgage. Many lenders use your ‘net profit’ figure to determine what they can lend to you. This will often result in them agreeing a much lower mortgage than, for example, someone who works full-time.
We can help subcontractors to get a CIS contractor mortgage by working with lenders who look at your income in a different way.
Instead of looking at accounts, we can look at borrowing based on your daily rate of pay.
Here, lenders will usually look at an average of your earnings on your previous three, six or twelve months of payslips. They will then work out your annual income based on these earnings.
Lenders then apply their own income multiples – typically somewhere between four and five times this amount.
As this varies from lender to lender, we can find the right deal for you based on your individual circumstances and a lender’s specific criteria. Adopting this approach means you can typically achieve a higher level of borrowing.
In addition, as there has been a lot of lost work throughout lockdown, some lenders are prepared to ignore the break in work when calculating your average income. This is a real benefit if your income has been affected by the coronavirus pandemic.
As with all mortgages, your application will then be subject to affordability testing based on the calculated income figure.
Lenders will take your outgoings into consideration, along with any other financial agreements you may have in place. These might include loans, credit cards, hire purchase, mortgages and any other financial commitments.
Get in touch