Can lenders use current year projections alongside your first set of accounts?

Typically no. Most lenders won’t use projections because there’s no baseline evidence to support them, your accountant may forecast a certain figure, but there’s no proof you’ve actually earned it.

For affordability purposes, lenders almost always want to base decisions on income that’s been earned, not income that’s projected. It’s similar to how they treat guaranteed bonuses on employed applications, until the bonus has actually been received, most lenders won’t count it, because a discretionary bonus can disappear.

Self-employment income can change quickly. Without concrete evidence, lenders don’t want to build affordability on figures that haven’t materialised yet.

Who needs to produce those projections for a lender to accept them?

Where projections are considered, they have to come from a qualified company accountant, not from you as the business owner. Sole traders producing their own projections wouldn’t be accepted, because there’d be no independent basis for the figures.

Some lenders (Santander and Accord are common examples) have accountant certificates as part of their process and will ask for projection figures from the accountant. Where the projection shows income increasing, this can be helpful. Where the projection shows income dropping off, the lender is likely to use the lower figure, which can work against you.

Lenders often set qualification requirements for accountants they’ll accept, typically ACCA, ACA, ICAEW or CIMA qualified. If your accountant holds a different qualification, some lenders won’t take their advice, so it’s worth checking upfront.

If your second year is significantly better, will lenders consider that?

This falls into case-by-case territory. If you’re approaching the end of your second year and have draft accounts (not yet finalised), some lenders may be willing to look at them alongside your finalised first year, usually averaging the two.

But it’s not guaranteed. Most lenders won’t go outside their criteria for draft accounts, and where they do, it’s at the individual underwriter’s discretion. If the answer is no, it’s no, there’s usually no appeal.

Two practical positions:

• If your average would be broadly the same whether you use one year or an average of two, apply now with a lender that accepts one year of accounts rather than waiting for the second year to finalise.
• If your second year is significantly stronger and you’re close to having finalised accounts, waiting a few months is often worth it, it gives you both a stronger income figure and a wider lender panel.

Speaking to a broker before deciding lets you weigh whether the wait genuinely benefits you or just delays the purchase unnecessarily.

Does it make a difference if you’ve entered a completely new industry?

Not really. If you’ve got one year of accounts, that’s what the lender is looking at, regardless of whether it’s in the same industry you worked in previously or a completely new one.

A lender may query the industry change, particularly if your income dropped significantly compared to your previous employed role. But there’s no automatic decline just because you’ve moved from one industry to another and started trading self-employed.

Where the industry change does matter more is if projections are on the table. If you’re relying on projections, being in the same industry as your previous role tends to give the projection more credibility. For applications based purely on the one year of accounts, industry change isn’t a specific issue.

What if you’ve set up a limited company after previously working as a sole trader?

This tends to widen the lender panel. Some lenders will treat this favourably because you’ve essentially just changed how you’re paid rather than starting from scratch, you’ve still got the historic trading track record as a sole trader.

That said, not every lender takes this view. Some still require two years of limited company accounts regardless of your prior sole trader history. Others will apply specific calculations, for example, taking your net income and salary from previous years, dividing them, and then applying a formula to your current position.

Overall, if you’ve got a track record as a sole trader and have now moved to a limited company, you generally have more options than someone with pure one-year-of-accounts history, but not universally.

Does having one year of accounts mean paying a higher rate?

Not necessarily. You’ll have a more limited panel of lenders, so you’re less likely to end up with the absolute cheapest deal on the market. But you won’t automatically jump 1% or 2% higher on rate either.

Whether you end up paying more depends heavily on what else is going on in the application. If your only differentiator is one year of accounts, and everything else is straightforward, you may pay slightly more but not significantly. If there are other complications on the application, buying from a family member, a concessionary purchase, a new build, adverse credit, those combine to affect your rate.

The one-year issue alone doesn’t force a jump to specialist pricing. It just limits which mainstream lenders will help.

What other factors matter most when a lender is assessing limited trading history?

The main one is sustainability of income, specifically, how comfortable your profit margins look.

A common issue is people wanting to use their salary and dividends when the underlying company is actually trading at a loss. Lenders will want to see a comfortable profit in the company, not just a level of drawings that’s being funded from reserves or borrowing. If the profit margin isn’t there, lenders get cautious about using the income you’re drawing.

So for limited company directors, expect the lender to look at both how much income you’ve taken from the company and how healthy the company itself is.

Why do newly self-employed applications get declined even when they can afford the mortgage?

The most common reason is affordability calculation limits rather than the income itself.

Lenders offering higher income multiples (5.5x or 6x) generally don’t extend those to newly self-employed applicants with one year of accounts. They tend to lend more conservatively on these cases, capped at 4x or 4.5x. So an application that could theoretically afford the mortgage on paper may not receive the income multiple needed to reach the borrowing figure required for the property.

The other reasons are usually general mortgage issues that would affect any application, credit, deposit, property type, rather than issues specific to being newly self-employed.

If your bank has told you they need two years of accounts, could another lender assess you differently?

Yes, absolutely. Every lender has a different position on how much trading history they need, which structures they’ll accept, and how they’ll assess the income.

Even where two different lenders both accept one year of accounts, they may calculate income completely differently:

• Some use salary plus dividends
• Some use net profit
• Some use a share of net profit
• Some use only 50% of the figure

It might not be that your original lender said no, it might be that they said yes but only used 50%, or salary plus dividends when your net profit was much higher. That’s when you’d hit the affordability shortfall. Another lender using net profit in full could get you through.

If your bank has said no, it’s worth speaking to someone who can view the whole market rather than assuming the market as a whole has said no.