Construction industry scheme mortgages provide an alternative route for self-employed or contracted workers who might have found getting a mortgage difficult due to their bad credit.
One of the benefits of a CIS mortgage is that lenders allow you to use the gross income rather than your business accounts. A higher income can result in a higher loan or a lower interest rate, which are factors otherwise harder to achieve with bad credit.
What is a CIS mortgage?A CIS mortgage isn’t a product in its own right - it’s a term used to describe a mortgage offered to a contractor or subcontractor who has signed up to the Construction Industry Scheme.
Through the scheme, contractors who employ subcontractors make deductions from their earnings and pay the money to HM Revenue and Customs.
Is it harder to get a mortgage as a CIS worker with bad credit?A lot of contractors and sub-contractors typically write off their expenses in a bid to reduce their tax bill but this also reduces their overall net income.
Lenders use income to assess affordability so a borrower with a lower income can be deemed as a higher risk, resulting in a smaller loan.
If you already have bad credit as a raised issue on your mortgage application, lenders may be even more reluctant to loan which is why being able to use your gross income can be helpful as a borrower. This gives you a higher income on your application which can make it easier to gain approval, assuming other criteria are met.
How to apply for a CIS mortgage with bad creditYour first step is to speak to a broker who specialises in bad credit mortgages for CIS workers as they can listen to what you need from an agreement and compare appropriate lenders who may accept you.
A mortgage broker can also pre-evaluate your eligibility for a CIS mortgage ahead of you applying to a lender, reducing the likilihood of a mortgage rejection which could impact your credit score. Knowing the criteria that lenders require borrowers to meet can help to save time on wasted applications too.
To apply for a CIS mortgage, you’ll need to be aged 18 or over, have registered to the Construction Industry Scheme and be able to provide:
- 3 months of weekly CIS payslips (taxed at the CIS rate of 20%)
- 3 months of bank statements
How much deposit do I need?
Similarly to other mortgage products, the minimum deposit for a CIS mortgage is 5%, although having a larger deposit of 10-15% could help you gain approval for a larger loan, especially if you have bad credit.
An important thing to know is that each lender is different and not all lenders offer CIS mortgages, let alone CIS mortgages for borrowers with credit issues.
Those that do may have varying terms and interest rates, so it’s helpful to calculate your monthly payments with a number of lenders to really understand which one can give you the best mortgage deal.
If you’re limited on time, ask your mortgage advisor to do it for you.
How much could I borrow for a bad credit mortgage as a CIS worker?The amount you can borrow on a CIS mortgage is down to your gross income and lenders will usually look at the total sum of your last 12 month’s payslips and then multiply this figure by 4.5 to calculate the amount they are prepared to loan you.
So if your annual gross income equated to £35,000, your lender could approve a mortgage of £157,500.
However, if you have bad credit, the amount you can borrow may be capped with some lenders. They may look at factors including your debt-to-income ratio, the type of property you’re buying and the regularity and stability of your income when deciding whether or not they should lend a larger amount to you.
Larger amounts and competitive rates are usually offered to borrowers with a clean credit history so your choice of lenders may be limited but with the help of a broker who specializes in bad credit mortgages for construction workers, you should be able to find a CIS lender.
Ask an advisor about your next stepsA mortgage application is a big decision that can affect your future finances as well as your ability to take out any further lines of credit, so always ask for guidance from a professional, you never know, it could save you a lot of money and hassle.
Our brokers have been able to secure bad credit mortgages for many construction workers, each with their own unique circumstances. Call us on 02380 980304 or send us a message via our website.