Mortgage guide for Construction Industry Scheme (CIS) workers

Introduction

Since 2004, we’ve helped thousands of CIS workers buy a home. Can we help you, too? Well, you’re probably in the CIS scheme if:

• You contract or subcontract in the construction industry
• Your employer deducts 20% tax at source from your income
• You have three consecutive monthly wage debits into your account
• Your credit history is sound

If you meet those four criteria, then: yes, we can help you buy a home, as long as you work as a:

• Bricklayer
• Carpenter
• Decorator
• Demolition worker
• Electrician
• Plasterer
• Plumber
• Site prep or ground worker

Every CIS worker is unique

We are a specialist mortgage broker for many different types of contractors and the self-employed. As such, we understand that every CIS subcontractor’s situation is unique.

We’ve made it our job to reach out to lenders to give us CIS worker mortgage options. And that’s what we’ve now got. These are some of the more complex situations we’ve been able to successfully resolve for our clients who:

• Have less than one year’s self-employment under their belt
• Have only saved a 5% deposit
• Have been in the UK for a little over year
• Don’t yet have a completed SA302
• Have slight blips in their credit history
• Affordability based on your contract rate

You may have already been rejected for a mortgage and blame it on being a CIS subcontractor. And, yes: that may have been a factor. But, you should also realise that all types of contractors can struggle with high street lenders.

The likelihood is that a lender has tried to fit you into either their PAYE or generic self-employed affordability calculations. That’s because they rarely have another option, and, as a CIS contractor, you’re neither of those things.

We know that the best way to assess your affordability is to use your contract rate. And, after much negotiation, we have access to underwriters who will use your day rate. No relying on accounts, SA302s and/or payslips. Today, a copy of your contract is all we need for the affordability part of your application.

Leverage our independence

Freelancer Financials is, and always has been, a family-owned independent mortgage broker. That means we’ve been able to approach any lender we’ve pleased to negotiate contract-based underwriting. So, as well as providing solutions for all types of contractor, we can also the full range of mortgages:

• Remortgages
• Mortgages for home movers
• First-time buyer mortgages
• Buy-to-let mortgages
• Specialist mortgages

Whatever part of your homeownership journey you’re on, we can get you to the next step. Our extensive network and experience can get you access to the most competitive contractor mortgages in the UK.

The importance of finding out what you want

The very first thing our brokers do is have a chat with you. This sounds informal, but it’s an important step. Only by understanding where you are and where you want to be can we give you the help you really need. You’ll then have that broker and their admin to support you through the entire mortgage journey.

We’ve already said the only thing we need to work out how much you afford to borrow is your contract rate. To verify that, the broker will ask you for:

• Either three- or six-months’ payslips, depending on your chosen lender’s criteria
• Your CIS scheme registration details, to evidence your employer’s 20% tax deductions
• Documents to show your deposit is in place, ready to go (at least 5% of your home’s purchase price)

These documents enable us to complete our Fact Find, compulsory with any type of mortgage. Then we do the rest.

First, we’ll secure your Decision in Principle, usually within 24 hours. We’ll then liaise with underwriters to get you a firm mortgage offer. If you’re happy with that, we’ll proceed and you at every crucial step.

The contract-based underwriting difference

If you use a limited company, your accountant will advise you to take a small salary and limit drawings. As such, you’ll leave the retained profit in the business so it attracts Corporation Tax, which will work out less than income tax. You’ll then get those accounts signed off, and get your SA302.

This is a great method of tax planning. It’s not a great way to prove what you can afford for a mortgage. Many underwriters will only use what’s on your SA302. That’s the same if you’re using a straight sole trader trading structure, too.

Contract-based underwriting is different in that it uses your day rate before deductions.

Borrowing using your CIS day rate: an example

This example shows how much you might borrow using your day rate. If you want to bypass the maths bit, head to our mortgage calculator.

Let’s say you earn £220/day, and your contract and payslips back that up. We would then annualise that day rate, based on you working five days per week, 46 weeks a year. Some lenders will use 48 weeks in this part of the calculation, but let’s err on the side of caution.

So, £220 x 5 = £1,100 per week. Annualised, that means: £1,100 x 46 weeks = £50,600 salary equivalent.

The last step is to factor in the lender’s affordability vector. This can range from 4.5 to 5.5, depending on several factors, including:

• Your credit rating
• The lender’s policy criteria
• Your unique situation

Again, erring on the side of caution, let’s use 4.5 for this example.

So, the final step: use your £50,600 ‘annualised’ salary × 4.5 = £227,700.

That means, if you earn £220/day, you can borrow up to £227,700 for a mortgage. That figure has the potential to increase if your profile scores highly against an individual lender’s criteria.

Lock in your remortgage rate up to 6 months before your current deal expires

Our service doesn’t only cover homebuyers or home movers. We can help CIS contractors to remortgage, too.

Knowing what you’ll be repaying each month in advance for your mortgage is key to managing your household budget. If your fixed introductory term is due to expire, we’ll help you gain the foresight you need to balance the household books.

Our remortgage service helps you lock in a new interest rate up to six months before you fall onto your lender’s SVR. You should avoid that at all costs!

Standard Variable Rates are often much higher than you’d have been paying during your introductory term. That means you must ensure that, before your current introductory rate expires, you’re locked into a new deal.

Our interest rate monitoring service can help you do that. That’s because once you’ve locked in your deal, you’re guaranteed that’s the most you’ll pay when your current deal expires. But, if interest rates drop, we automatically switch you to that lower rate. Win-Win!

Conversely, if the interest rate goes up, it doesn’t matter: you’re covered. You’ll only ever pay the rate applicable on the date you locked it in.

CIS workers with less than 12 months’ contracting history

You needn’t wait until you’ve been contracting a full year before applying for a CIS contractor mortgage. You only need to have worked in the same industry continually for at least 12 months.

High Street lenders might tell you to wait until you’ve got 12 months’ CIS payslips behind you before applying. Not us. A handful of our underwriters have access to ‘Day 1’ CIS mortgage lending criteria. If you can document the relevant work history, we can do the rest.

This is a game-changer for CIS subcontractors. Your home can now match your earning status without the usual delays.

Helping CIS workers with a less-than-perfect credit history

We can even secure mortgages for CIS contractors with a less-than-perfect credit score. If you’ve got a small CCJ or payment default registered against you more than two years ago, we can still help.

Again, it’s only a few select lenders, but they can help with less-than-perfect credit scores. If you can show what the problem was then and how you’ve addressed it since, that shows willing on your part. Our advisors should then be able to build a case to support your mortgage application.

Lenders will have a copy of your credit report, maybe even reports from two different sources. You need to get at least one copy of your credit report. There could be things on there you don’t know about. You’ll impress an underwriter more if you’ve taken the initiative yourself.

If you’re unsure of how to address these issues, talk to our brokers. Be candid and hide nothing. Armed with all your details,our advisors can mount a challenge for your mortgage, based on your day rate. There’s no time like the present!

Conclusion

It can be difficult to get a mortgage as a CIS contractor. But it needn’t be!

Whether you’re ready to buy now or are just planning ahead for the future, call us or send us your enquiry. One of our experienced CIS mortgage advisors will call you right back to get the conversation started.

Regardless of your circumstances, there’s every chance we can help. All of our mortgage advisers are both experienced and qualified. Trust them to help you build the foundation for your future.