First Time Buyer

Podcast approved by The Openwork Partnership on 30/09/2024

What are the main benefits of being a CIS worker if you’re a First Time Buyer looking for a mortgage?

If you’re paid through the CIS scheme and you’re a construction industry worker, you’re in a fantastic position – I truly believe you are the best type of self-employed out there.

You don’t have to have two years of books, which most mortgage lenders would need if you are self-employed.

As a First Time Buyer who’s paid through CIS, the first benefit is you could traditionally borrow a lot more than any other type of self-employed person. That’s because mortgage lenders will focus on your gross payslip income – the amount you’re paid before tax, which is similar to the employed.

If you’re on £200 pounds a day, working five days a week, that’s £1,000 a week. The amount you could borrow will be based on that. If you’re traditionally self-employed, mortgage affordability is based on your profit after your expenses. That will often yield a much lower borrowing total.

So the first benefit is borrowing more. The second benefit is that you’re treated like an employed person. You’re not going to be held back by the hoops that self-employed people usually have to jump through.

The third benefit is that you could access exactly the same products from high street banks and the same interest rates.

What are my mortgage options if I’m signed up to the CIS scheme and I’m a First Time Buyer?

If you’re a construction worker paid through the CIS scheme, you will have 20% tax deducted by the people you’re working for. So when getting a mortgage, the same rules apply as if you’re employed.

You could access mortgages with a 5% deposit. If you’re living in local authority rented accommodation, you could use Right to Buy. If you want to buy a shared ownership property, which is part-buy, part-rent, you could do that with CIS income.

Help to Buy isn’t available anymore, but military Help to Buy is. If you’re working in the military, we could combine CIS income and military Help to Buy. So you have all the standard options that any First Time Buyer could access.

What eligibility criteria do I need to meet as a First Time Buyer, CIS worker?

A lot of people think that if you’re paid through CIS scheme and you self-assess, you need two years’ track record. You don’t – three months is enough. If you’ve only been doing CIS work for three months, it’s possible to get a mortgage.

You would also need a track record of working in that industry, perhaps as an employed person. So if you’ve gone from employed to CIS, then three months is the minimum.

Having a 12 month working history is really important. It doesn’t really matter whether you were employed for some of that time, or even working through an agency. You just need three months’ CIS minimum and a 12 month history of working in the construction industry.

How much can I borrow for a mortgage as a First Time Buyer/ CIS worker? What’s the minimum deposit required?

The minimum deposit required is 5% of the property price, or if you’re buying a shared ownership, then 5% of that share.

The amount you could borrow will differ from lender to lender. Every lender has their own affordability model that factors in whether you have children or adult dependants living with you, car finance or other credit agreements. For a rough idea, I normally use an income multiplied by 4.5. That should be achievable for most people with no children or significant financial commitments.

Let’s say you are an electrician earning £200 pounds a day before tax and you normally work five days a week. That’s £1,000 before tax – that’s your gross. If you do that consistently over three months and we present it to a lender, they assume that you’re not going to work 52 weeks without a break.

A good scenario is £1,000 for 48 weeks of the year, including a few weeks off. That would put you on a £48,000 gross usable income for mortgage affordability purposes. If I multiply that by 4.5, about £215,000 would be affordable for a property.

How is affordability calculated for CIS workers? Are there any differences if you’re a First Time Buyer?

There’s no difference whether you’re a First Time Buyer, second time buyer or 10th time buyer. The way it’s calculated is exactly the same, and it’s done in a very similar way as for an employed person.

If you’re employed, a lender will look at your gross income on your pay slip – before tax, not net. We’re looking at the gross. If you’re CIS, they’re going to look at your gross income on your pay slips in exactly the same way.

The only slight difference is that they might take an average over three months. If you’re employed on a guaranteed basic salary, they wouldn’t need to take an average because it would just be the same on every pay slip.

What documents do I need to have ready as a First Time Buyer CIS worker? How do I prove my income?

For most cases, if you’re paid through the CIS scheme, you need two documents to prove your income. First is your CIS payslips from the construction firm you work for. I appreciate they don’t always give you these, although they’re meant to.

If you are applying for a mortgage, speak to the boss and ask for those payslips. They might be weekly or monthly. Then you need to back that up with bank statements, making sure that the amount on your payslips matches what actually goes into your bank account. If it doesn’t, there might be a reason for that.

You might need an explanation from the people you work for on why it doesn’t match up. A good answer is that you’re paying expenses and then invoicing the construction firm – for materials, perhaps. They pay you for your labour and then reimburse your expenses on top of that.

Just having a good, solid explanation for any discrepancies is really helpful and will certainly help your mortgage broker understand what they’re looking at.

What are the most common mistakes to avoid when applying for a mortgage as a First Time Buyer and CIS worker?

Number one would be going to the wrong lender. There are approximately 100 mortgage lenders out there and last time I counted, only 16 cater for people paid through the CIS scheme.

If you pick the wrong mortgage lender, they will look at your tax returns and calculate mortgage affordability from your profit after expenses, which will invariably yield a much lower borrowing figure.

Another mistake is going to the wrong broker. A generalist mortgage broker may not fully understand CIS. A new broker to the industry may not have come across it, or have the knowledge required. Mortgage brokers hang around in tribes and we compare notes on banks that lend on CIS – and even some who have been in the industry for a long time have no idea of the latest ones that will lend.

Sometimes, mortgage lenders don’t even publicise that they do it. Unless you’re working in CIS all the time, you just wouldn’t know about it.

Mistake number three, as I mentioned earlier, is where your bank statements don’t match the net amount on your pay slips. You’ll need to find out why that is, and often there’s a good explanation.

Another thing if you are new to CIS and you are not fully registered yet, is that an emergency tax could be deducted. So instead of the standard 20%, you are deducted 30% at source until you’re fully registered.

If you give a lender payslips with a 30% deduction, they won’t use that CIS income. They would only work from your self-assessments, which is your profit after expenses. So do make sure you’ve got a 20%, not a 30% deduction.

Can I get a mortgage if I have bad credit as a CIS First Time Buyer?

We come across this quite often. The first thing is not to panic if you’ve got bad credit and you’re paid through the CIS scheme.

It does restrict the lenders, because of the 16 that I mentioned earlier, not all will lend with adverse credit. Adverse credit has a broad scope. It could be anything from a late payment on a mobile phone bill right through to being repossessed or bankrupt. It just depends on the severity.

With small defaults under £500, you might still be able to get a mortgage based on your CIS income, even from a high street lender. It depends on how old that default is and the situation around it.

Typically, if you’ve got any defaults or County Court Judgments from over 24 months ago that are satisfied, we should still be able to find a mortgage lender for you. But you’re going to need a 15% deposit for most scenarios. 10% may be doable, but you will improve your chances of approval with a 15% deposit.

What happens if I miss a mortgage payment as a First Time Buyer CIS worker?

If you’ve missed a mortgage payment, it means you’ve already been successful in getting a mortgage. At that point it doesn’t matter whether you’re a CIS worker – the bank doesn’t care how you’re paid.

They’re more concerned that you’ve missed that payment and how you’re going to pay it back. You will have a mark on your credit file to show that you missed a mortgage payment – although, if it’s paid in the same month, it doesn’t register on your credit file.

If it’s only partially paid, or not paid at all in the month that it’s due, a negative mark will appear on your file. That will have implications the next time you need a mortgage.

To put that into context, let’s imagine you’ve just started a new, five year mortgage as a CIS worker. In the first six months, you miss a mortgage payment – but you don’t need to even look at mortgage options for another 4.5 years.

So when the time comes in 4.5 years to remortgage and find a new lender, I wouldn’t be too concerned about that one mortgage arrear. But if you’ve got mortgage arrears within the past 24 months, that will impact whether it will go through, and even affect the interest rate you pay.

I always encourage self-employed construction workers – and, in fact, anybody who’s self-employed – to ensure that they have some sick pay cover. Because if you’re off sick and you can’t pay the mortgage, mortgage arrears could cause big problems in the future.

How can I improve my chances of getting a mortgage as a First Time Buyer and CIS worker?

Check your credit file. I always recommend a multi-agency credit report like Checkmyfile because it’s going to show Experian, Equifax and TransUnion. You’ll be able to see everything reported about you.

Make sure that you are registered on the electoral roll at the property where you’re currently living. If not, get it updated, because that causes confusion for the mortgage lender.

If you’re not sure what you’re looking at on a credit file or how to interpret it, speak to a mortgage broker. They will give you a good indication of your eligibility for a mortgage.

Make sure you’ve got pay slips – It’s very common for a CIS worker not to have these, but the company you work for has an obligation to provide them. So if you’re thinking about getting a property, ask the boss for those payslips.

It might take a little bit of time to produce them. If you’ve been there in the same job for 12 months, request payslips for that whole period – or failing that, a minimum of three months.

Then, speak to a mortgage broker that understands the CIS scheme and which mortgage lenders we could go to. A lot of clients we meet have already spoken to a mortgage broker and were told they need two years’ self-assessment records. That’s simply not true.

So make sure you’re speaking to a mortgage broker that understands this. Of course, we understand it because we’ve been dealing with CIS subcontractors for a very long time now and it’s our typical client. The clue is in the title of the business – we’re more than happy to help out here.

Can I get a Buy to Let mortgage as a First Time Buyer CIS worker?

Buy to Let as a First Time Buyer is tricky. I won’t go into the reasons why on this podcast. It’s possible, but could be a challenge.

Mortgage lenders, if they could do it, wouldn’t look at your CIS income. They would look at your self-employed profit, and typically as a First Time Buyer, would allow you to borrow a multiple of that profit, not your CIS income. So you might need one or two years’ records to do that.

You might be living at home with family, but you have some money burning a hole in your pocket and want to invest it. Mortgage lenders would look at your self-employed profits, not your CIS income, to gauge how much you could borrow.

How does a First Time remortgage work for a CIS worker?

It’s exactly the same, whether it’s a remortgage or a first mortgage in terms of the amount you could borrow. If you’re going from one lender to another, that’s a remortgage as opposed to a product switch, where you stay with the same lender. Remortgaging to a different lender is based on your gross CIS income on your pay slips.

How do I apply for a mortgage as a First Time Buyer CIS worker?

Unless you are the absolute expert on this and you know exactly which lenders to go to, speak to a mortgage broker that understands how CIS income works. We know which lenders could lend and which can’t.

We could look at your scenario and know whether we need a lender that uses the last three months to calculate affordability, or one that looks over a longer period of six months or even 12 months. That could be great if you’re just coming back after Christmas – all CIS subcontractors will down tools for two or three weeks in December.

In January, if a lender looks at the last 12 weeks, you’re going to have a big hole in your income. A lender that looks at the last 12 months will iron out any creases, such as time off over Christmas or other holidays.

Finding the right mortgage broker, who understands your circumstances, is really what you want to be doing.

YOUR PROPERTY 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.

Approved by The Openwork Partnership on 30/09/2024.