Mortgages for construction workers – what you need to know
Thursday 20 October, 2022
Marian Isciuc, a Thomas Oliver mortgage adviser and protection specialist in Harlow, Essex and Grays, Kent reviews how construction workers can apply for a mortgage. If you are a construction worker in central or north London, Hertfordshire, Bedfordshire, Essex who needs mortgage advice call our mortgage broking team now on 01707 872000.
Are you a construction worker needing local mortgage advice?
If you’re working in the construction industry through the CIS scheme, then you should be eligible to use your pre-tax earnings as your personal income, for mortgage purposes. Most of the CIS workers are self-employed, but not many of them know that there are banks that can use their turnover in the affordability calculations rather than their net profit from self-employment. This maximises the mortgage amount they can secure and therefore offers a more generous budget for a property.
What is the CIS scheme?
The CIS is an HMRC scheme which applies if you work for a contractor in the construction industry but not as an employee, so for example as a self-employed individual. The CIS rules mean that the contractor is usually obliged to withhold tax on its payments to you at 20% if you are ‘registered’ with the scheme.
The sub-contractor can work as self-employed sole trader or limited company director, where the 20% CIS tax can be paid on source. Both scenarios are acceptable for the CIS sub-contractor mortgages, when other eligibility conditions are met. Applicants need to work in the industry for more than two years, or one year with the same contractor and have no other sub-contractors trading through their own UTR (this usually applies for limited companies).
Can I get a mortgage using the CIS scheme if I am a limited company director?
To be eligible for a CIS mortgage, a limited company director needs to be a one-man company, where the income paid to their limited company is for their own work and not the work of other sub-contractors. Many limited companies are started at the accountant’s recommendation to be more efficient tax-wise and may qualify as the one-man company accepted by banks who look at the CIS income.
In these circumstances, some lenders look at the bank credits to the business account over a period of 3 months or up to 12 months for others, annualise the figures and get the income they can accept for mortgage purposes. What this basically means is that we can use the limited company’s turnover as the director’s personal income, which is quite unique in the market. The CIS bank credits must match the net amounts showing on the weekly/monthly CIS statements. These basically are payslips provided by the contracting company which shows the gross amount paid and the CIS tax deducted on source.
The same calculations apply for a sole trader self-employed sub-contractor. This scheme allows the bank to basically consider the applicants as ‘employed’ for the company they sub-contract for. That makes sense because usually the payments are regular and similar every week or every month and this is the reason why these banks are comfortable with this scheme.
When is the best time to check the affordability calculations?
The best time for a CIS sub-contractor to check their best budget for a property is at least 3 months following an annual leave or holiday. There are lenders that only look at 3 months’ worth of CIS earnings and if applicants don’t have any breaks within the last 13 weeks, then their annualised income will look much better and their maximum budget for a property will be much higher. Bear in mind that any week off for annual leave or holiday means no income that can be used for mortgage purposes, unlike the employed applicant that gets holiday paid by their employer. So, plan your mortgage assessment accordingly.
Does this scheme work for all self-employed in the construction industry?
The CIS scheme doesn’t apply to all self-employed applicants. If the sub-contractor works for two companies at the same time, then banks might exclude them from the CIS sub-contractor criteria and ask for the tax calculations and tax year overviews to cover the latest 2 years. This is the way all the banks will treat a self-employed applicant. Sometimes the net profit showing on the latest 2 years finalised accounts might show a better figure than the CIS calculations over the last 3 months or 12 months and in this case, it will work in a self-employed client’s favour.
‘There are several scenarios and it’s imperative to contact a mortgage adviser so our team can recommend the most suitable solution for a CIS worker’s objective to purchase a property. We might ask for many documents, but this is only to find out the best option for your circumstances. We’ll be looking at the CIS statement of earnings to cover the last 12 months, bank statements to cover the last 3 months and tax calculations to cover the last 2 years, so we could advise on the scenario that benefits the CIS sub-contractor.
The Thomas Oliver mortgage broking team have helped many CIS workers by offering them mortgage advice so they can get onto the property ladder, and in these uncertain times it’s even more important to ask for mortgage advice. If you want to learn more, please contact one of our experienced local mortgage brokers based in Cheshunt, Hertfordshire on 01707 872000.’
Please note: Your home may be repossessed if you do not keep up repayments on your mortgage.