Something we get asked a lot is: can I get a mortgage if I’m self-employed? Well, the simple answer is yes, you can. At this point, your mortgage adviser will start to ask a number of questions, one of which will be to establish whether or not you work under the Construction Industry Scheme (CIS). So why does this matter? Well, let’s have a look in more detail.
What is a CIS Contractor?
What is CIS? It stands for the Construction Industry Scheme. This is where your employer will take a flat rate of tax from all your income, normally 20% and at the end of the year, you will need to submit your own tax return to find out if you are due a refund or if you need to pay any excess. Under this scheme, you are treated as self-employed with HMRC as it’s your responsibility to ensure you’re paying the right amount of tax due.
One of the problems that self-employed individuals have when applying for a mortgage is that their declared income can be considerably lower than their overall turnover. This is because you typically offset expenses against tax. However, by doing this you’ll find that lenders will then only use your net income, which lowers your affordability. (See our Sole Traders blog post)
Thankfully, for those in the construction industry, the Construction Industry Scheme (CIS) provides a way for subcontractors working to present their earnings as a pre-tax income, rather than the final profit. Essentially treating you as employed and increasing your mortgage affordability.
What makes the CIS scheme so much more attractive for those looking to get a mortgage?
One of the main benefits of this scheme is that unlike other self-employed products you can apply for a mortgage after just 3 months because you’re treated as employed; although your lending options are limited and do increase after a full 12 months trading history.
Higher affordability is also another benefit. As a CIS worker, mortgage lenders will use your annual gross income when determining the size of your mortgage. To put this in an example I have included a case study below.
Richard is a self-employed Machine Operator. He secured a contract working on a large commercial build and over the year Richard earned £55,000 before the tax deductions and any expenses. After Richard spoke to his accountant, he only had net profits of £22,000 because he bought a commercial van for his work. When Richard applies for a CIS mortgage, he would find that his affordability could be around £220,000. But under normal self-employed criteria, his affordability might be considerably less at £99,000.
Are you a CIS contractor looking for a mortgage?
So if you’re a CIS contractor looking to get a mortgage, you will want to discuss your options with a mortgage broker first; they will be able to let know what you can borrow based on your income and search the whole of the market. We have mortgage advisors available in Milton Keynes, Crowthorpe and Essex.
We hope this short article gives you hope as a CIS contractor and if you would like to discuss your options with a human being, then our team at Robin Mortgage Design would be happy to help. Just give us a call on 0333 242 3863, alternatively, you can fill out our online contact form, and we’ll be in touch with you shortly.
Good Luck with your mortgage!
Written by Mark Travell, Director of Robin Mortgage Design
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