What is the Construction Industry Scheme (CIS) in the UK?
Construction Industry Scheme or CIS is a tax scheme that requires contractors to deduct money from subcontractors’ payments and pay it directly to HM Revenue & Customs (HMRC). The CIS scheme applies to most construction jobs, including carpentry, plumbing, electrical work, tiling, etc.
Under the CIS scheme, contractors are also required to register with HMRC and provide details of all subcontractors they have paid during the tax year.
The construction industry in the UK is structured rather differently from many other sectors. It relies on a complex network of relationships between contractors and subcontractors.
At its simplest, contractors pay subcontractors for the construction work they do. Many different firms and organisations may pay other businesses for the construction work they do. Often, those contracting businesses are paid by other businesses, too. Some firms work as contractors but then also do work as subcontractors.
What is the meaning of the term CIS mortgages?
CIS mortgages are a term used to refer to mortgages that are specifically designed for those who are members of the Construction Industry Scheme (CIS). A CIS mortgage is available to self-employed contractors who are registered in the scheme and can be used for purchasing residential properties. These types of mortgages are also known as Construction Industry Scheme Mortgages. Most UK lenders that offer CIS mortgages require the applicant to be a member of the Construction Industry Scheme and have at least two years’ worth of accounts that demonstrate their income.
Mortgage advisers often recommend applying for a self-employed mortgage in order to purchase property as a self-employed contractor. However, there are still some providers who will accept applications from those who are members of the CIS.
Why do self-employed contractors have difficulty getting approved for a mortgage?
Self-employed contractors are usually considered to be higher risk by lenders due to their irregular income. Lenders often require two years of accounts, which can be difficult for self-employed individuals to provide. Furthermore, many lenders are wary of the CIS scheme and will view it as a potential source of irregular income, as contractors may be paid in arrears or only when a job is completed. However, if you have a specialist mortgage broker to help you with your mortgage application, they will be able to help you compare the various CIS mortgages available and select the right one for your circumstances.
Getting a CIS mortgage
Getting a CIS scheme is complicated, but with the right mortgage broker, it can be made easier.
The CIS scheme is a tax deduction scheme that applies to subcontractors in the construction industry. When a contractor pays a subcontractorA person or company hired by a contractor to perform a speci..., they are required to deduct a percentage of the payment for tax and other deductions. The rate of deduction is 20% for registered members of the CIS scheme and 30% for non-registered members.
The CIS scheme benefits self-employed tradesmen in two ways. Firstly, it ensures that tax and other deductions are made in advance and submitted directly to HMRC on their behalf. This can be helpful for subcontractors, who often have to manage their finances carefully.
Secondly, the CIS scheme can make it easier for self-employed tradesmen to get a mortgage. When applying for a mortgage, lenders will typically ask for proof of income. For self-employed borrowers, this can be difficult to provide, as they may not have traditional payslips. However, self-employed tradesmen who are registered under the CIS scheme can provide their payslips and receipts from contractors as evidence of their income.
To apply for a CIS mortgage, you will typically need to provide six months’ worth of payslips showing that deductions have been made at the rate of 20%. You will also need to provide approximately six months’ worth of bank statementsA record of a borrower's financial transactions often requir....
Here is a summary of the benefits of the CIS scheme for self-employed tradesmen who are applying for a mortgage:
- It ensures that tax and other deductions are made in advance and submitted directly to HMRC on their behalf.
- It makes it easier to provide proof of income to mortgage lenders.
If you are a self-employed tradesman who is registered under the CIS scheme and you are considering applying for a mortgage, it is important to speak to a qualified mortgage adviser. They will be able to help you find the right mortgage for your needs and to ensure that you are able to provide all of the necessary documentation.
Applying for a CIS mortgage
Applying for a CIS mortgage is similar to any other type of mortgage application. The main difference is that you will need to provide evidence of your contract payments and proof of self-employment in order to get approved.
When applying for a mortgage, it is important to make sure that you have all of the necessary documents prepared before you start the process. This includes six months’ worth of payslips showing deductions at the rate of 20%, bank statements, proof of self-employment such as invoices and receipts, and other relevant documents.
You should also make sure that you provide accurate information about your income to the lender. This includes details of any late payments or arrears on contract payments.
When applying for a CIS mortgage, it is important to choose a specialist broker who has experience in dealing with self-employed applicants. They will be able to help you determine which lender is best suited to your individual circumstances and ensure that you get the best rate possible.
How much can I borrow under a CIS mortgage?
When calculating your maximum borrowingThe maximum amount a borrower can borrow. limits, CIS mortgage providers are likely to multiply your annual net income – the total, less deductions, shown on the receipts or payslips from your contractor – by four or five times, depending on other factors, such as your credit rating and the amount of deposit you have available.
The minimum deposit for a CIS mortgage is likely to be 5% of the value of the property you want to purchase – a loan-to-value (LTV) ratio, in other words, of as much as 95%. Even if you are offered such a generous mortgage, however, you might want to bear in mind that better deals may be available if you have a bigger deposit.
Even if you have a poor credit score, some CIS mortgage providers are still likely to welcome your application, provided you have not defaulted on repayments or had County Court Judgments against you within the past 2 years.
Which occupations are eligible for Construction Industry Scheme Mortgages?
Occupations that are eligible for Construction Industry Scheme Mortgages include:
- Gas fitters
- Painters and decorators
- Steel fixers
- Other tradespeople working in the construction industry
To be eligible for this mortgage, you must be self-employed and registered with the CIS. You must also have a regular income and be able to afford the monthly repayments.
Some mortgage providers may also have additional eligibility criteria, such as a minimum deposit requirement or a maximum loan-to-income ratio.
If you are unsure whether you are eligible for a mortgage, you should speak to a mortgage adviser. They can help you assess your eligibility and find the best mortgage for your needs.
If you are considering applying for a CIS mortgage, it is important to speak to a qualified mortgage adviser. They can help you assess your eligibility and determine which lender is best suited to your individual circumstances.
It is also important to make sure that you have all of the necessary documents prepared before you start the process. This includes six months’ worth of payslips showing deductions at the rate of 20%, bank statements, proof of self-employment such as invoices and receipts, and other relevant documents.
Finally, you should make sure that you provide accurate information about your income to the lender. This includes details of any late payments or arrears on contract payments.
Q1. What is the Construction Industry Scheme (CIS) in the UK?
A1. The Construction Industry Scheme (CIS) in the UK is a tax scheme that requires contractors in the construction industry to deduct money from payments to subcontractors and remit it to HM Revenue & Customs (HMRC). It applies to various construction jobs like carpentry, plumbing, and electrical work.
Q2. What do these specialised mortgages refer to?
A2. Specialised mortgages, tailored for self-employed contractors registered under the CIS, facilitate the purchase of residential properties. Lenders offering these mortgages typically require applicants to be CIS members with a minimum of two years’ income history.
Q3. Why do self-employed contractors face challenges in getting mortgage approval?
A3. Self-employed contractors can encounter difficulties obtaining mortgage approval due to their irregular income. Many lenders request two years of accounts, which may be challenging for self-employed individuals to provide. Additionally, some lenders may view CIS income as irregular. However, specialized mortgage brokers can assist in finding suitable mortgage options.
Q4. How does one apply for such mortgages?
A4. Applying for these mortgages involves providing evidence of contract payments and self-employment. Registered CIS members typically need six months of payslips with a 20% deduction rate and bank statements. It’s advisable to work with a specialist mortgage broker to select the right lender for your specific situation.
Q5. What is the maximum borrowing limit for these mortgages?
A5. Providers of these mortgages usually calculate borrowing limits by multiplying annual net income (after deductions) by four to five times. The minimum deposit requirement is typically 5% of the property value, with a maximum loan-to-value ratio of up to 95%. Lenders may consider applicants with poor credit, provided they haven’t had recent defaultsMissed payments on credit accounts, which can affect a borro... or County Court Judgments.
Q6. Which occupations qualify for tailored mortgages in the construction industry?
A6. Occupations eligible for tailored mortgages in the construction industry include bricklayers, carpenters, electricians, gas fitters, painters and decorators, plumbers, roofers, and more. Eligibility typically requires self-employment, CIS registration, regular income, and affordability of monthly repayments.
Q7. What documents are needed when applying for these mortgages?
A7. When applying for these mortgages, prepare essential documents, including six months’ payslips with 20% deductions, bank statements, proof of self-employment like invoices and receipts, and other relevant records. Ensure accuracy in disclosing income details to the lender.
Q8. How can I improve my chances of mortgage approval for self-employed individuals?
A8. To enhance your chances of mortgage approval as a self-employed individual, maintain a clean credit history, provide accurate income documentation, and work with a specialist mortgage broker experienced in handling self-employed applicants. They can guide you to a suitable lender and mortgage product.
Q9. What role does the CIS scheme play in self-employed tradesmen’s finances?
A9. The CIS scheme benefits self-employed tradesmen by ensuring that tax and other deductions are made in advance and submitted to HMRC on their behalf. This helps tradesmen manage their finances effectively and provides evidence of income when applying for mortgages.
Q10. Are there alternative mortgage options for self-employed individuals apart from specialised mortgages?
A10. Yes, self-employed individuals have alternative mortgage options beyond specialised mortgages. They can explore self-employed mortgages, where lenders consider various income sources and financial factors. Consulting a mortgage adviser can help identify the best mortgage for individual circumstances