Posted 22 May 2019
What does CIS mean?
CIS stands for ‘Construction Industry Scheme’, and is a particular system set up by HMRC for people working within the construction industry, setting out particular rules that all self-employed contractors need to abide by when they are paid for work they have done. For instance, if you are a subcontractor hired by another company to do particular work on a project, both you as the subcontractor and the hiring company (the contractor) will need to follow rules set out by the CIS in terms of your payment.
The CIS essentially enables registered contractors to take money from the payments made to subcontractors they work with. This cash then goes towards the subcontractors’ income tax and national insurance contributions. If a subcontractor also registers with the CIS, they only have to pay 20% income tax rather than 30%. This helps CIS workers because they tend to have large daily rates but a low net income overall, which in turn makes it more difficult for them to secure a mortgage deal with a lender. Many lenders normally make a judgement on a person’s net income when determining whether to lend them money, which is where a CIS worker is disadvantaged.
What is a CIS mortgage?
Many CIS workers declare a low net profit and write off expenses to save money on tax. This is why a specific CIS mortgage can help, because with this type of mortgage, a lender can use the gross income on your payslip rather than annual accounts to consider you and determine how much they’d be able to lend you. You need to meet the following criteria to qualify for a CIS workers mortgage:
- At least 6 months’ worth of CIS payslips
- A minimum of 5% deposit to put down on the property you intend to buy
- A deduction of 20% tax on the scheme (if your tax is deducted at 30%, a lender may want to view your business accounts)
What amount can I borrow on a CIS workers mortgage?
A lender will generally take the total sum of your last 12 months’ worth of payslips to determine how much you have earned in a year. A typical lender will usually lend between 3-4 times the amount of your annual income, but this will depend on your credit rating, whether you have other mortgages, and how much of a ‘risk’ they think you may be in terms of meeting repayments. If you have a poor credit score, a lender still might consider you, as long as you have not been in default.
If you would like more help and information on CIS workers mortgages and lenders offering such deals, contact us at iam mortgages today where we can compare the market for you and find the right lender for your needs. Talk to us about your situation today by giving us a call or filling in our easy enquiry form.