For workers under the Construction Industry Scheme (CIS), securing a mortgage can come with unique challenges. Since CIS workers are often paid as contractors rather than full-time employees, traditional income verification methods may not fully reflect your earnings, making it harder to meet standard mortgage criteria. However, with the right guidance and lender approach, CIS workers can successfully qualify for a mortgage based on their actual income.
This guide explains the specific requirements, income documentation, and strategies for securing a mortgage as a CIS worker, highlighting how Mortgage Knight can help navigate this process.
What is a CIS Mortgage?
A CIS mortgage is designed to help contractors and self-employed individuals within the Construction Industry Scheme secure a mortgage based on their real earnings. Unlike standard employee mortgages, which rely on payslips and stable monthly salaries, CIS mortgages consider gross earnings, allowing lenders to assess affordability using a CIS worker’s unique income structure.
Who Qualifies?
- Self-employed or subcontracted construction workers registered under the Construction Industry Scheme (CIS).
- Workers who receive payment through CIS deductions but may not have the traditional tax records that salaried employees provide.
Key Benefits of a CIS Mortgage
CIS mortgages provide greater flexibility for those with non-traditional income, allowing them to demonstrate affordability more accurately:
- Uses Gross Income Calculation Many lenders offering CIS mortgages calculate affordability based on gross income rather than net income. This benefits CIS workers who might have higher earnings than what traditional self-employed tax returns show
- Reduced Documentation Requirement Since CIS workers receive payments with tax deducted at source, lenders can sometimes accept CIS income statements rather than requiring multiple years of tax returns.
- Flexibility with Shorter Employment History Some lenders will accept CIS workers with as little as six months of income evidence, providing flexibility for those who recently transitioned into CIS work.
Mortgage Requirements for CIS Workers
Income Verification for CIS Mortgages
Income verification for CIS mortgages is often more flexible, as lenders understand the unique payment structure. However, it’s essential to present consistent earnings to increase approval chances.
Documents to Gather:
- CIS Payslips or Statements: These are crucial as they show the gross income before deductions.
- Bank Statements: At least three to six months of bank statements to confirm regular income deposits.
- Invoices or Remittance Slips: These are helpful in showing consistent earnings, especially if paid by multiple contractors.
Tip for CIS Workers: Keep all CIS statements and invoices well-organised to provide a clear picture of your gross earnings.
Affordability Checks Based on Gross Income
One of the major benefits of CIS mortgages is that many lenders calculate affordability based on *gross income* rather than net income. This approach acknowledges the high tax deductions CIS workers face and allows for a more accurate reflection of their earnings.
Example Calculation
- Monthly Gross Income: £3,000 (before CIS deductions)
- Annual Gross Income: £36,000
With affordability calculated on this gross income, the lender assesses the amount based on the worker’s actual earnings potential.
Tip: Check that your chosen lender recognises gross income for affordability to maximise borrowing potential.
Credit Score and Financial History
Like all mortgage applicants, CIS workers’ credit history is important in determining mortgage approval. However, lenders offering CIS mortgages may be more lenient if you demonstrate consistent earnings and financial stability.
Key Credit Considerations:
- Payment History: Show on-time payments for any loans, credit cards, or other debts.
- Credit Utilisation: Keep credit card balances low to improve your credit standing.
- Debt-to-Income Ratio: A manageable ratio demonstrates that your existing debts are in line with your earnings.
Tip for Improving Creditworthiness: Review your credit report and correct any errors. Aim to keep credit card balances low and avoid new credit applications just before or during the mortgage process.
Deposit Requirements for CIS Mortgages
Deposit requirements for CIS mortgages are similar to those for traditional mortgages. Typically, a deposit of *5-10%* is needed, although a larger deposit can increase borrowing power or improve interest rates.
Standard Deposit Ranges:
- 5% Deposit: For high loan-to-value (LTV) mortgages, often with slightly higher interest rates.
- 10% or Higher: A larger deposit may result in a more competitive interest rate and greater loan approval chances.
Tip: Save as much as possible for your deposit, as a higher deposit demonstrates financial responsibility and may reduce the interest rate on your mortgage.
Common Challenges for CIS Workers and How Mortgage Knight Can Help
CIS workers face unique challenges when applying for a mortgage. Mortgage Knight has experience assisting CIS workers in overcoming these obstacles and finding suitable lenders.
Here’s how we help:
Connecting with Specialist Lenders: Mortgage Knight works with lenders experienced in CIS mortgages, who understand the income structures of CIS contractors and provide tailored mortgage options.
Streamlining the Documentation Process: We help organise and present your income records in a way that highlights consistent gross earnings, making it easier for lenders to assess affordability without requiring lengthy tax returns.
Navigating Adverse Credit: For CIS workers with less-than-perfect credit, Mortgage Knight identifies lenders with flexible criteria, focusing on your income stability and overall financial picture.
Case Study:
Case Study: How Mortgage Knight Helped a CIS Worker Secure a Mortgage
Michael, a 35-year-old CIS electrician, struggled to find a mortgage lender who understood his income structure. His payslips reflected gross earnings, but his net income was reduced due to CIS deductions. Michael approached Mortgage Knight to navigate the mortgage process.
Client Background
Michael had a stable income but faced challenges proving affordability due to the CIS deductions on his payslips. He saved for a 10% deposit but needed assistance with income verification.
Challenges Faced
- Income Verification Issues
Michael’s income on paper didn’t reflect his gross earnings, complicating his mortgage application.
- Credit Score Concerns
Michael’s moderate credit score also limited his lender options.
Solutions and Outcome
Connecting with a Specialist Lender
Mortgage Knight identified a CIS-friendly lender who based affordability on gross income, giving Michael full credit for his earnings.
Highlighting Consistent Earnings
We helped Michael present CIS statements and bank records that clearly reflected his income stability, securing lender confidence.
Outcome
With Mortgage Knight’s assistance, Michael successfully secured a mortgage with competitive terms, achieving his goal of homeownership.
Key Takeaways for CIS Workers Applying for Mortgages
- Verify Income with CIS Statements
Gather CIS statements and ensure they accurately represent your gross earnings.
- Use Lenders Recognising Gross Income
Look for lenders who calculate affordability based on gross income to improve borrowing potential.
- Maintain Good Financial Habits
A stable credit profile and consistent on-time payments improve approval chances.
- Work with a Broker Experienced in CIS Mortgages
Mortgage Knight can connect you with suitable lenders and streamline the documentation process.
Frequently Asked Questions
Q 1: Can I get a mortgage with only six months of CIS income?
A: Yes, some lenders accept applicants with as little as six months of CIS income, provided the income is consistent.
Q 2: How do lenders calculate affordability for CIS workers?
A: Many lenders use gross income (pre-tax) to calculate affordability, which benefits CIS workers by reflecting their true earnings.
Q 3: What deposit do I need for a CIS mortgage?
A: Most lenders require a deposit of 5-10%, though a larger deposit may improve borrowing terms.
Q 4: Can I get a CIS mortgage with adverse credit?
A: Yes, some lenders offer mortgages to CIS workers with adverse credit, focusing on stable income and recent financial behaviour.
Professional Contractor Mortgage Guidance
If you’re a contractor looking for professional mortgage guidance, we’re here to help. Our specialist knowledge and lender relationships enable us to provide expert advice tailored to your situation.
Schedule your consultation today. We’ll discuss your circumstances, explain your options, and provide honest advice about the best approach for your contractor mortgage application.
