Mortgage for Subcontractors
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Home » Specialist Mortgages » Contractor Mortgages Made Simple » Mortgage for Subcontractors
Mortgage for Subcontractors
Adam Messer explains how the mortgage process works if you are a subcontractor.
Can a subcontractor get a mortgage?
Yes. There are various different ways of looking at you as a subcontractor. Many subcontractors are part of the Construction Industry Scheme (CIS) which can be beneficial for a mortgage, or we could do a self-employed mortgage. There are different routes to go down, but in a nutshell, yes, you can get a mortgage as a subcontractor.
What do subcontractors need to qualify for a mortgage?
Commonly, subcontractors are in trades – electricians, plumbers, builders, that sort of occupation. You might subcontract for a larger firm that pays you on a self-employed basis.
If you’re self-employed, there are certain things we need, such as a couple of years’ history, ideally, although one year is okay. There’s content on our site about mortgages with one year of self-employment.
There is another option as well, which is CIS. If you’re in the industry, you’ll know about the Construction Industry Scheme. Lenders will look at your CIS income as opposed to your self-employed income, and that’s often a higher amount. You could potentially get a higher mortgage that way.
We need to decide which camp we’re in and that will dictate what you need. It’s not necessarily clear cut. If you’re CIS, you don’t need as long a history as if you’re self-employed. If you’re self-employed you will need income figures for at least a year, and ideally two years.
Do different lenders have their own rules for subcontractors looking to get a mortgage?
All lenders will look at you as a self-employed person, where you do your own tax return. Lenders will look at the net profit that you make in a year.
Lenders that will do CIS mortgages actually look at your gross CIS income, which is often a better situation to be in for affordability. It means you haven’t taken out expenses from the total they will use.
Each lender looks at that in different ways and with CIS, some lenders want more history than others. It does depend – different lenders have their own rules and criteria for subcontractors. But generally, there’s an option for most people.
Are there any special mortgage options just for subcontractors?
There are no mainstream high street lenders specifically for subcontractors or CIS workers.
Some lenders have specific criteria for those people, but at rates that everyone can have.
If you meet any of their criteria, you can have any of their rates. There are no special options. Specifically, it’s just about how lenders look at your income.
What documents do subcontractors need when applying for a mortgage?
If we’re looking at you as self-employed, we’re going to want your tax calculations or SA302s for the last year or ideally, two years. This is a summary from HMRC of your income after expenses.
If we can go down the CIS route, we’re generally just going to ask you for your CIS payslips. Depending on the lender, it might be three months or it might be a year. One lender asks for a year’s worth of CIS payslips, which can be a bit of a challenge if you get paid weekly. It’s not easy to organise 52 payslips for us.
Everyone’s going to need bank statements, and we’ll probably want to see your CIS payments hitting a bank account, as well. That might be a different account from your normal spending money, in which case we’ll want that as well.
Then there’s ID and proof of deposit, which is the same for everyone.
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How much deposit is needed for a subcontractor looking to get a mortgage?
It’s just the same as for everyone else. Generally speaking, you can buy a property with as little as 5% deposit. However, the rate is reasonably high. If you can put in more deposit, it’s better. 10% will give you a better rate. The same thing applies with 15%, 20%, 25%. The more deposit, the better.
Rates and criteria only change for every 5% increase in deposit. So if you’ve got a 9.5% deposit, for example, you get the same rate as for a 5% deposit.
How much can subcontractors typically borrow based on their income?
Again, it’s the same as for people in any industry. It’s based on an affordability assessment. It depends what other commitments you’ve got – loans, credit cards or car finance. It will vary if you’ve got children, and how long you’ve got left to repay the mortgage.
The older you are, the less time you’ve got to repay the loan, so the monthly payments could be higher. Those factors all go towards how much you can borrow. It very much depends on your own individual circumstances so it’s best to go through that individually.
Can subcontractors use their self-employed status to get a mortgage?
Yes, absolutely. Most lenders will happily look at you in that way. It’s usually better to go down the CIS route if you are a CIS contractor. But you might not be in the construction industry and still be a subcontractor – you could be a subcontractor in all sorts of industries.
If you’re not able to go down the CIS route, we will go down the self-employed route. We’ll just need different things compared with someone that’s employed, that’s all.
Do mortgages for subcontractors usually come with higher interest rates?
If you fit a lender’s criteria, it doesn’t matter whether you’re employed, self-employed or CIS – their rates are their rates. We all get the same rate no matter what the circumstances.
Just because you’re a subcontractor, it doesn’t mean you get a higher or lower rate from any particular lender.
Can subcontractors with a bad credit history still get a mortgage?
It depends how bad we’re talking, how old your credit problems are and what they were. If you’ve got defaults and County Court Judgements that are less than a year old, you’re probably going to struggle. If you paid a credit card bill late in 2019 it’s probably not going to cause anyone any issues.
It very much depends on this on the scale of the bad credit. But bad credit doesn’t mean you can’t get a mortgage. There are some specialist lenders that will do mortgages for CIS or self-employed people with adverse credit history.
Do you need to have worked as a subcontractor for a certain amount of time to qualify for a mortgage?
Again, it depends how we’re going to look at your income. If you’re CIS, it’s a much shorter period of time. With some lenders we only need three months’ CIS pay slips. If we need to look at you as self-employed, we need at least one year’s figures, ideally two.
As long as you’ve been doing it for a year, that’s generally going to be OK. The longer you’ve been subcontracting, the more options we’re going to have.
You don’t have to have been doing it for five years, or anything like that. However, if you have literally only just started, that’s tricky, because we’re going to need a little bit more track record.
What can subcontractors do to boost their chances of getting approved for a mortgage?
It’s very helpful to prepare your documents, get everything ready and make sure your credit score is as good as possible.
Being on the electoral register is good for your credit score. It’s also important to look at your income. If you’re CIS, lenders average your three months’ CIS payslips, so make sure you haven’t taken too much time off – although lenders will factor in some time off anyway.
Having everything up to date and your deposit ready will put us in the best possible position.
How can a mortgage advisor or mortgage broker help here?
It’s just about knowing which lenders to go to. I know which lenders to choose for CIS or self-employed, for one year’s trading and any other specifics.
To save yourself googling and getting it wrong, your mortgage broker is worth their weight in gold. We make sure we start by going to the right lender.
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