Why should construction workers take mortgage advice?
- Our mortgage brokers understand the CIS Scheme mortgage criteria and what is required for you to get a CIS mortgage.
- We also know which mortgage lenders will offer a mortgage for those in the CIS Scheme.
If you are a self-employed CIS worker, use your pre-tax earnings rather than your personal income for mortgage purposes. By using your turnover rather than net profit you may be able to take out a larger mortgage.
The CIS scheme allows the bank to basically consider the applicants as ‘employed’ for the company they sub-contract for. That makes sense because usually the construction worker will receive payments that are regular and similar every week or every month, which is why these banks are comfortable lending to construction workers.
Criteria needed to get a CIS mortgage
- To be eligible any applicants should have been working in the construction industry for at least two years, or one year with the same contractor.
- Construction workers shouldn’t have any other sub-contractors trading through their own unique taxpayer reference (UTR)
- If you are a construction worker with a limited company set up, you can use the limited company’s turnover as the director’s personal income.
- If you are a construction worker working for two companies, the banks might ask for tax calculations to cover the latest two years.
- Some lenders only look at 13 weeks’ worth of earnings and having no breaks will make your turnover appear higher. The best time to submit your accounts is at least 3 months following a holiday or annual leave.
How does the CIS scheme work?
An official CIS mortgage product doesn’t exist but the CIS is an HMRC scheme so it can be used by any eligible sole trader in the construction industry to present their income more accurately to mortgage lenders. The rules for CIS mean if you are registered in the scheme the contractor will normally withhold 20% tax on any payments owed to you
The CIS scheme is important for construction workers as often sole traders in the industry find their declared income is much lower than their turnover because they are offsetting expenses against tax to minimise income tax paid which disadvantages them when they are applying for a mortgage.
To find the most suitable CIS option we may need to see a 12-month earnings statement, bank statements and tax calculations, but complete our booking consultation form and we will set up an initial meeting with you so we can explain how to proceed with the CIS mortgage scheme.
CIS Scheme example
John is a self-employed construction worker. He has worked for a large house builder for over one year. Through the CIS he is paid £50,000 for this current year’s work. In the previous tax year John earnt £55,000 but he was able to offset £15,000 earnings on his tax return as he travelled for work and had other business expenses. His declared profit for the previous tax year of £40,000.
Typical lenders consider 4x the amount someone earns, If John applies for a mortgage using the previous year’s net profit, he could only borrow £160,000 (£40,000 x4) but if he applied through the CIS Scheme, he could use the current year’s earnings (£50,000 x4) and could borrow £200,000.
Although John would need to put down a larger deposit, he could use the CIS scheme to borrow £40,000 more if he used his current year’s earnings even though he earnt £5,000 less than during the previous year.