CIS Mortgage with 3 Months’ Payslips
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
Most buy to let mortgages are not regulated by the Financial Conduct Authority
CIS Mortgage with 3 Months’ Payslips
David Sharpstone explains how the mortgage process works for CIS workers with only three months of payslips.
Can I get a mortgage if I only have three months of CIS payslips?
Absolutely. I can think of three or four mortgage lenders that will accept three months’ CIS payslips. In actual fact, one lender will do it with two months’ worth. An important caveat is that you need to prove you’ve been in the construction industry for at least 12 months before you can apply. That’s the same with every lender. Some lenders actually ask for two years, but the vast majority set a minimum of 12 months. If you have that, they will calculate affordability from the last three months’ payslips.How do lenders work out my annual income from only three months of CIS payslips?
Three months’ payslips are really a snapshot of your earnings. The lender won’t just assume that you work 52 weeks a year. They will therefore look at your CIS payment and deduction statements and take the average gross income earned. That’s the part that’s liable to deduction. The reason is that some CIS payslips include reimbursement for materials – so if you’re working on a building site and popping off to Travis Perkins before every job, you’re invoicing it back to the construction firm. That’s not income, that’s just money coming back to you. So, it’s always gross income liable to deduction. A lender will take the average over three months and then annualise it. They’ll take the average, multiply it by 12, and then divide it by 46 or 48 weeks, to calculate your annual income for mortgage purposes. They know you’re going to have two weeks off for Christmas, and you lose another week in bank holidays. Over the course of the year, you might have a holiday or two, which is how they arrive at 46 or 48 weeks. But even if they knock off six weeks out of those 52, that gross CIS income will be far superior to your net profit on your annual tax returns. The net profit is what’s left after all your expenses, but your CIS payslips don’t factor in any expenses or tax. It’s without a doubt the best way to calculate self-employed income.Will having only three months of CIS payslips limit how much I can borrow?
Sometimes, and sometimes not. Let’s imagine you’ve decided over Christmas to buy your first home. You’re looking on Rightmove and making some offers, and then I ask you for your last three months’ CIS payslips. The likelihood is you’ll have a two-week gap for Christmas, and a mortgage lender will view that as two weeks of zero earnings. If you’re applying for a mortgage straight after Christmas, or straight after spending a month in Ibiza – or Benidorm for me – then it would affect how much you can borrow. However, if you’ve been working your socks off and you have three really good months with no gaps, that will boost the amount that you can borrow. This is why I always say to my clients, if you’ve got a year, give me a year. Then I can work out whether we’ll get a better level of borrowing with a lender that calculates an average over the last three months, or using a whole year. It’s important to speak to a broker, because we’ve got to find the right lender for your individual circumstances – and any gaps in employment.Do the three months of payslips need to show consistent earnings?
No. Some CIS subcontractors work on a day rate and do have a very consistent income. But a lot of CIS workers I’ve helped over the years are paid on price work, which means they might get paid £7,000 one month and £1,000 the next. That’s absolutely fine, because we’ll just use the average.What happens if one of my three CIS payslips is lower than the others?
There’s no need to worry, because an average will be taken. If you’ve taken some time off in the last three months, that will always have an impact. The best time to apply is when you’ve had no gaps and you’ve worked every hour God sends. But having one payslip lower than the others won’t cause problems in whether a lender gives you the mortgage or not. It’s just the impact of that on how much you can borrow.Do I need more than three months of payslips if my work has gaps?
If you’ve had a holiday or it’s been Christmas in the last three months, and that takes your average earnings down, it might be better to use your CIS income over a longer period. I’ve got lenders that look at the last six months, and others that look at the last 12 months. I’ve even got one that would use the last 24 months. Different horses for different courses.Speak To An Expert
Will lenders ask for extra documents if I only provide three CIS payslips?
To prove your income, a mortgage lender looks at your CIS payslips and the corresponding bank statements, to make sure the amount on your payslips is going into your bank account.
You don’t need to show tax returns. I’m often asked how much profit somebody needs to show to achieve their required mortgage borrowing. Quite often, that’s at the expense of actually paying more tax.
Some people might not be as tax-efficient as usual with their receipts – and end up actually paying more tax for that year, while having higher profits. The reality is, if you’re using CIS income, banks don’t give two hoots about your tax returns. They’re just not interested.
You can keep your profits as low as you normally do, because the banks only look at your CIS income.
Do the three CIS payslips have to be consecutive months?
Yes. There’s no long-winded answer here.
Can I still get a CIS mortgage if my three months of payslips show variable income?
Yes. If the income is going up and down, that’s fine. Mortgage lenders understand that you’re self-employed and you can work the hours you want to work. Sometimes you’re working on a day rate, sometimes on an hourly rate, sometimes on price. Variation is absolutely fine – it’s not a problem.
Does having only three CIS payslips affect the interest rates I’m offered?
No, you’re not going to be penalised because you’ve only got three CIS payslips. Don’t forget you have to demonstrate that you’ve worked in the construction industry for a year, minimum. That might be as employed, self-employed, non-CIS or it might be CIS.
In terms of the interest rate, three months is absolutely fine – you’re not going to get penalised.
Will lenders check my bank statements to back up the three months of CIS payslips?
Without a doubt. We need three months’ CIS payslips and the corresponding bank statements. Before sending them to your mortgage broker, it’s good to check the figures yourself – it’s not uncommon for the construction firm to make an error. I see it so often.
You should question any errors, because you might have been underpaid. Make sure that it all matches up, because a lender will spot it.
You’ve demonstrated how a CIS mortgage broker can help – is there anything else you’d like to add?
There are so many different things to factor in for CIS. We need to make sure we’re going to the right lender, so we need to know your working pattern for the last 12 months. Is it better to use the last 12 months’ CIS payslips, the last six months’ or the last three months’?
What other documentation is going to be needed? How are we going to present the case to the mortgage lender?
It’s a minefield without the knowledge, experience and expertise of a broker, so please do speak to us.
Key Takeaways:
- Lenders will accept as few as three months of consecutive CIS payslips, but you must prove a minimum of 12 months’ history in the construction industry.
- Lenders calculate your annual income by taking the average gross income (liable to deduction) from your recent payslips and annualising it over 46 or 48 weeks to account for time off.
- It is fine if your payslips show variable income, as the lender uses the average over the period. However, significant gaps (for Christmas or a holiday) within the three months can lower your average and affect the amount you can borrow.
- You will need to provide your CIS payslips and the corresponding bank statements to prove the income is being received. Tax returns are generally not required.
- A mortgage broker is essential to navigate the complexities of CIS mortgages, as they can determine which lender and which income period (3, 6, 12, or 24 months) will result in the best borrowing level for your individual circumstances.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
For specialist tax advice, please refer to an accountant or tax specialist.
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