Construction Industry Scheme mortgages can seem complex, but they don’t have to be. In this blog, we’ll be taking a closer look at what a CIS mortgage is, how it works, and the benefits that come with choosing a CIS Mortgage.
What are CIS Mortgages?
CIS Mortgages are a type of home loan specifically designed for self-employed contractors who operate within the Construction Industry Scheme (CIS). The scheme enables contractors to reclaim tax deducted from their payments. A CIS mortgage is secured against a property and works in exactly the same way as any other mortgage, but with additional flexibility to account for the contractor’s income.
How do CIS Mortgages Work?
In order to apply for a CIS Mortgage, you will need to provide evidence of your income. You’ll need to show that your business is running successfully and that you can afford to make mortgage payments. This can be done by providing bank statements or invoices showing the jobs you have completed over the past year. It’s important to note that CIS Mortgages are a specialist product and lenders may be reluctant to lend if they feel the risk of default is too high.
Why Can’t I Use a Normal Mortgage?
Normally, lenders require proof of income to assess your ability to pay back the loan. As CIS contractors are often self-employed, they may struggle to provide evidence of regular income in order to qualify for a standard mortgage. With a CIS Mortgage, the lender looks at your invoices and recent contracts as evidence of your ability to repay the loan. Hence why CIS mortgages are often a more attractive option than a standard mortgage for self-employed contractors.
What are the Main Features of CIS Mortgages?
CIS Mortgages offer contractors several key features:
- Flexible repayment terms – CIS mortgages can be tailored to suit the contractor’s lifestyle and income. This means that the repayments can be spread out over a longer period of time, making them more affordable in the short term.
- Lower interest rates – Most CIS mortgages have lower interest rates than standard home loans, helping make them more affordable in the long term. This is a great option for contractors as it can help reduce the cost of their loan.
- Tax-efficient – CIS Mortgages are tax-efficient as any interest payments made on the mortgage are deductible against your taxable income. This means that you can claim back some of the money paid towards the mortgage each year.
- Larger loan amounts – As contractors often have higher incomes than those employed in permanent positions, they may be able to borrow more money with a CIS mortgage. This could allow you to purchase a larger property or finance other large expenses.
- Greater security – As CIS mortgages are backed by the Construction Industry Scheme, you can be sure that your loan is safe and secure even if you experience financial difficulties. This is a great option for contractors who may experience fluctuations in income due to contract work.
The Benefits of Choosing a CIS Mortgage
CIS Mortgages offer numerous benefits to contractors looking to purchase or refinance a property. Let’s take a look at the various benefits:
- Increased buying power – With lower interest rates and the ability to take out larger loan amounts, contractors can purchase more expensive properties with a CIS mortgage.
- Lower risk of default – With the additional security of being backed by the Construction Industry Scheme, it is much less likely that you will fall behind on payments and risk your loan going into default.
- Easier repayment terms – The flexible repayment terms of a CIS mortgage mean that you can spread out your mortgage payments over time, making them more manageable.
- Tax advantages – As the Construction Industry Scheme enables you to reclaim tax deducted from income, it’s likely that you will be better off with a CIS mortgage than with a standard loan. This will help you to save money in the long run.
CIS Mortgages and Deposits:
In order to qualify for a CIS Mortgage, you will usually need to provide a deposit of at least 5% of the value of the property. This is to show that you have some money invested in the property and can afford to make mortgage payments. However, if you are able to prove your ability to pay back the loan with invoices and contracts, some lenders may not require a deposit. CIS mortgages typically have lower deposits than normal mortgages, which can be a great benefit if you don’t have much money to put down.
How To Apply For a CIS Mortgage:
Applying for a CIS Mortgage is much like applying for any other type of loan. You will need to fill out an application form and provide evidence of your income, such as invoices and contracts, or bank statements showing recent transactions. It’s important to note that the lender will assess your ability to repay the loan based on these documents, so make sure you provide accurate and up-to-date information. Additionally, you may need to provide proof of identities such as a passport or driver’s license.
Once your application is approved, the lender will give you a loan offer that details the mortgage’s terms and restrictions. Make sure to read through this carefully before signing on the dotted line and make sure you understand all of your obligations. This will help you to ensure you get the best deal possible.
Making The Most of Your CIS Mortgage:
Once you have taken out a CIS mortgage, it’s important to make sure that you are making the most of your loan and not wasting any money. Here are some tips for making the most of your mortgage:
- Make regular payments – Make sure to make your mortgage payments on time and in full. This will assist you in staying on top of your debt & avoid late fines or penalties.
- Pay off the loan early – If you are able, try to pay off the loan earlier than necessary. This will save you money in interest charges over time and help you to pay off the loan faster.
- Refinance – If interest rates drop, consider refinancing your mortgage to take advantage of a lower rate. This will help to reduce your monthly payments and save you money over time.
In conclusion, CIS Mortgages offer contractors an attractive and secure way to purchase or refinance properties. With lower interest rates, larger loan amounts, and greater security, they are an ideal choice for those within the Construction Industry Scheme. If you think a CIS mortgage could be right for you, make sure to speak to a professional mortgage broker who can guide you through the process. Good luck!
