Applicants who use the CIS system are referred to as "CIS mortgage applicants," even though lenders don't really provide something called a "CIS mortgage."
You can qualify for a CIS mortgage even if you don't have three years of financial statements or if your net profit has been very modest in recent years. This is because construction employees can utilise their gross revenue on pay stubs rather than in tax returns.
WHAT IS A CIS MORTGAGE?
The Construction Industry Scheme (CIS) is a programme that was developed by the HMRC with the intention of enabling contractors to withhold a certain amount of money from the payments made to subcontractors and then remit that money to the HRMC. After then, the deductions are considered to be advance payments toward the subcontractor's tax and National Insurance obligations.
The plan requires that contractors register for it, although subcontractors are not required to do so. If the subcontractors do not register for the programme, then a greater percentage of their wages will be withheld as contributions to the programme. Payslips that detail the subcontractor's gross and net revenue are often given to the workers under this category. Those who participate in this programme are then eligible to apply for a mortgage based on this form of income, which gives them the opportunity to take out larger loans.
HOW DO CIS MORTGAGES WORK?
Since candidates who are self-employed occasionally have difficulty getting a mortgage, CIS mortgages are helpful. This is because many sole traders will deduct as many costs from their revenue as they can in order to pay less tax. The mortgage amounts issued are frequently less than anticipated since lenders typically base their assessments of affordability on net profit numbers.
With a CIS mortgage, lenders may determine affordability using gross income data rather than net income data. Your ability to borrow more money for a mortgage may rise as a result.
WHO IS ELIGIBLE TO RECEIVE A CIS MORTGAGE?
If you own a construction firm and are a member of the Construction Industry Scheme, you qualify. However, there are specific requirements that must be met. A CIS mortgage can be obtained with as little as a 5 per cent down payment provided you meet certain requirements, including being self-employed for less than a year and working in the UK for less than three years.
HOW AFFORDABILITY IS DETERMINED
Lenders use two factors to determine your affordability when you apply for a mortgage. They start by looking at your revenue and obtaining a headline number. If a lender permits you to borrow 4.5 times your annual pay and you make £25,000, for instance, the total amount will be £112,500.
They take into account your expenses and debts after they have the headline amount. You might not be aware of this but having credit card debt or vehicle financing can significantly lower your affordability calculation. To receive the most accurate affordability assessment, it is preferable to pay off all prior debt before applying for a mortgage, if at all feasible.
Some expenses, such as child care, food, and regular bills, will be inescapable in an affordability evaluation. Unless they are very large, these expenses do not have a substantial influence on your affordability.
Finally, if you have maintenance obligations, such as spousal support or child support, they will be taken into account when determining how much you can borrow.
WHAT ARE THE ADVANTAGES OF OBTAINING A CIS MORTGAGE?
The ability to borrow more is the main advantage of a CIS mortgage. Lenders normally allow you to borrow up to 4.5 times your yearly income after determining your capacity to pay back the loan based on your income.
HOW MUCH CAN I BORROW WITH A CIS MORTGAGE?
With a CIS mortgage, the maximum amount you may borrow is determined by the lender using their affordability assessment. For instance, while some lenders calculate your borrowing capacity at 4.5 times your yearly earnings, others use lower figures.
There are certain lenders who also let you to borrow up to five times your annual wage. As a result, the type of lender you pick and the amount of income you can disclose will determine how much you may borrow.
WHAT DEPOSIT IS REQUIRED?
The same principles that govern standard mortgage calculations apply to deposits for CIS mortgages. If you put down 10 per cent of the buying price or more, the majority of lenders will give you the best rates. However, you may also employ family springboard mortgage products, which include a 0 per cent deposit option, and 5 per cent down payment mortgages.
To be clear, although though springboard mortgages require no down payment, you still need a relative to deposit 10 per cent (or more) into a savings account with your preferred lender. If you fall behind on your mortgage payments, the lender will utilise this savings account as collateral.
CAN I GET A CIS MORTGAGE WITH BAD CREDIT?
Credit issues may affect anybody, including independent contractors, and having a low credit score might make it difficult to get a mortgage loan. The majority of traditional lenders favour applicants with credit scores of excellent or above. Even if you provide verification of your income through the CIS, it is doubtful that you will be accepted with these lenders if you have a poor credit score.
The good news is that in addition to traditional lenders, there are now alternative lenders who provide mortgage packages supported by CIS income data and are accommodating to individuals with poor credit.
When a borrower has poor credit, the lender will almost always charge them a higher interest rate on the loan. Before applying for a mortgage, it is strongly recommended that you make an effort to raise your credit score if at all feasible.
Even if boosting your credit score is not a possibility for you, you should still be able to find a mortgage product that suits your needs on the market. It is recommended to consult with a whole of market mortgage broker in order to discover that product because they are the ones who will know which lenders to approach on your behalf.