For brokers with clients working in the construction industry, trying to obtain a mortgage for a contractor or subcontracting client can seem like a daunting task.
As well as the common misconception that lenders are reluctant to take on the risk associated with these self-employed or complex income earners, there are also some ill-conceived ideas about the level of work involved in processing applications.
While it’s certainly true that Construction Industry Scheme (CIS) mortgage applications come with an additional layer of complexity, with the right lender, level of preparation and understanding of the process involved, securing a mortgage for a CIS worker can be relatively straightforward. It’s just a matter of knowing where to start.
Applying for a mortgage
Some brokers may already be familiar with the application process required to secure a CIS mortgage, but for others going through the process for the first time, greater clarity and guidance on how to get the best deal for their client will certainly be needed.
Either way, one of the main things to take into account when applying for a CIS mortgage is that these products are generally not offered by mainstream mortgage lenders using automated underwriting systems.
Given the unique and complex nature of each application, CIS mortgages need to be assessed on a case-by-case basis by a specialist lender or building society that individually underwrites each application. This is generally due to the fluctuating nature of the applicant’s income and the perceived risk to the lender.
They are also only available to contractors or subcontractors enrolled in the CIS scheme, which is why it’s crucial for brokers to outline this at the start of the application process.
Unravelling a CIS worker’s finances
One of the many questions Loughborough Building Society receives from brokers looking to obtain a CIS mortgage for their clients often relates to the supporting documentation for proof of income.
As the CIS is a tax deduction scheme, income verification is crucial and unlike traditional mainstream borrowers, many CIS workers may not have regular pay slips to prove their earnings, which means they will have to prove their income in other ways such as with bank statements or a SA302 tax calculation from HMRC.
This is particularly important given the fact that they will also not have a set level of income and the amount they earn will most likely vary from one year to the next.
While it’s common practice for many self-employed clients to use their business account statements or their SA302 for affordability purposes, we’re often asked whether a client can use their CIS vouchers or pay slips instead when applying for a mortgage.
Some lenders, such as Loughborough Building Society, will consider CIS vouchers and pay slips for affordability purposes provided the applicant has been sub-contracting to one sole firm for the previous six months. In this case, we would then base affordability on the latest three months CIS vouchers or pay slips.
In some cases, any CIS worker that has worked for the same firm for six months can also be treated as employed instead of self-employed for borrowing purposes. This can help to simplify the application process considerably and means we would average out the last three months’ earnings and multiply it by 52 weeks to assess affordability and borrowing capacity.
In cases where the client sub-contracts to several different firms, the applicant would be assessed under standard self-employed policy. This means that the most recent year’s accounts rather than an average over two years when applying for a mortgage will be considered.
This can prove helpful in cases where income may have been hampered by the effects of the last three years or fluctuated due to supply and demand issues in the construction sector.
Given the diverse range of borrowers utilising the CIS scheme, the needs and demands of each client will vary considerably. For brokers seeking to obtain a mortgage for one of these clients, speaking to a specialist lender with knowledge of working in this area of the market should be the first port of call to ensure the best and most suitable outcome for their client.
Shekina is the deputy editor at Mortgage Solutions and commercial editor at Mortgage Solutions and Specialist Lending Solutions. She has nearly eight years of experience in the B2B publishing market, having previously covered the hospitality, retail, pet, accounting and jewellery sectors.
Shekina has worked for Mortgage Solutions and Specialist Lending Solutions for almost five years. Here, she covers the market’s breaking news stories, engages with professionals in the sector, and oversees any commercially agreed content in partnership with mortgage-related companies.
This includes presenting webinars and hosting roundtable discussions on developing themes in the mortgage sector.
She is an NCTJ-trained journalist and was nominated for the Headline Money Awards Mortgage Journalist of the Year in 2021.
In her spare time, Shekina likes to read, travel, listen to music and socialise with friends.
She currently reports on current events in the mortgage market and liaises with financial clients to produce sponsored content.
Follow her on Twitter at @ShekinaMS
