Today’s blog is for all CIS construction workers. I discuss how you can stay tax efficient and borrow more money on a mortgage using your gross pay even as a self employed person.
What is a CIS mortgage and why is it only available for construction workers?
If you work in the construction industry and paid via the Construction Industry Scheme (CIS) you can use your remittance statements as proof of income, like employees use payslips. This means you can use your income gross before the accountant has made any deductions for expenses.
To qualify for this type of mortgage you need to have 2 years construction industry experience and paid via the CIS scheme. You can do these mortgages with good or bad credit. The underwriters only ask if you have two years experience, they don’t ask for any evidence. They reserve the right to ask for evidence, but not often asked. I suppose they could request CIS statements from two years ago or an employment reference.
You can use a CIS mortgage for remortgaging, purchase, first time buyers, 5% deposits, debt consolidation or home Improvements. Some lenders can offer CIS mortgages to people with bad credit also.
The main benefit of using your CIS remittance statements as income proof is they will show you earning a higher annual salary, compared to your company accounts. The accountant will reduce your profit with your expenses reductions like fuel and clothing to limit your tax liability. This also reduces your income and as lenders use income multiples to calculate the amount they will lend you it can affect the amount of money a lender is will to lend to you.
The lender will calculate your income using a couple of methods. This will depend on the lenders own criteria. Some lenders will ask for 3 months latest remittance statements and others will ask for 12 months latest remittance statements. All lenders will want continuous statements with no gaps. One lender does say they will take a view should you have gaps in the last 12 months and another only asks for 3 months so any previous gaps would not matter as long as you have 3 consecutive remittance statements at point of application.
To calculate your income the lender will take an average of your remittance statements. If they ask for 3 statements they will total all net payments up then divide my 3 and multiply by 12 to calculate your annual income. If they ask for 12 statements they will total all 12 net payments.
If you are VAT registered and you are paid the gross amount into your bank, the lender will use this amount to calculate your income.
To apply for this type of mortgage all you will need is the following documents.
3 or 12 CIS statements
Driving licence or council tax bill
3 months bank statements showing income credited
This type of mortgage is very specialist and only offered by a couple of lenders. You will speak with some mortgage advisers not aware of this loophole, as only 5 lenders are able to offer this type of mortgage. The good news is that they are mostly big high street lenders offering the most competitive rates.