And the Construction Industry Scheme (CIS)
A contractor is somebody who provides services/goods to a specific client, under specific terms. As a contractor, you can either be classed as:
self-employed – if you work as a sole trader/have your own ltd company
an employee/worker – if you work through an agency or a large ‘Umbrella Company’, who pays your wages/taxes.
How to prepare for getting a mortgage as a contractor
Here are some helpful tips that can aid you when apply for a mortgage. Having a riskier employment status and lacking a secure income can sometimes be unattractive to lenders. However, if you take some of the following advice, your chances with even the strictest lenders may increase.
• Aim to get a good deposit together (at least 10%) – this is a tip for anybody looking for a mortgage, though perhaps weighs heavier upon contractors who are applying. If you can produce a solid deposit, lenders will be pleased. Plus, the higher your deposit, the less your mortgage will be.
• Get your documents and paper work in order – it is very important when applying for a mortgage you have your current up-to-date contract to hand. This will help lenders to see your income and the duration of your contract, which gives an insight into your borrowing long term.
• Avoid having long breaks when changing contracts – lenders will be looking for consistency in their applicants, alongside the income amount. By having minimal breaks between contracts, you will be more favourable to lenders.
• Be realistic about your budget – make sure that you will be able to afford the repayments on what you are asking to borrow. Look over your income and expenditure and leave room for interest rate changes, and pull together something practical and affordable.
• Be aware of your credit rating – lenders can potentially base a lot upon your credit score, so it is important that you don’t have a poor credit score.
• Take some advice from experts – speaking to a mortgage adviser can be an incredibly helpful thing to do. They will have your best interests in mind, and will find the right and most efficient mortgage for you. Call us today on 0333 320 8658 to have a chat with one of our friendly, experienced advisers.
Being a contractor, overall, should not have an overly negative impact on your chances of being accepted for a mortgage. There can be difficulties due to income and proving your consistency to lenders however, if you go down the right routes - and get the right advice – you should be able to find the perfect mortgage for you.
Construction Industry Scheme (CIS)
The Construction Industry Scheme (CIS) involves tax being deducted from payments that relate to construction work. The payments it applies to are those made by contractors to subcontractors; it does not apply to payments made to employees. The scheme is designed to help those who are self-employed and struggling to produce 3 years of accounts and having to declare a low net profit. It allows you to use CIS payslips as gross income rather than your business accounts (where tax is deducted at 20%) as long as you have 6 months history. The amount you can borrow will depend on your ‘value of measured work’ figure. For more information speak to an adviser.
If you are a contractor and have been thinking about taking the first step in the mortgage process, then hopefully this blog has given some helpful tips on how best to prepare. Why not speak to an advisor today, if you feel you are ready to apply? Call us at View Finance today on 0333 320 8658 or send us an email at [email protected], and one our experienced brokers will be more than happy to offer you the best advice they can give to you.