What’s the difference between freelancers and contractors?

What’s the difference between freelancers and contractors?
Contractor Mortgages

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Last Updated on September 18th, 2018 02:11am.

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There is no official definition to differentiate a freelancer from a contractor. At least not from the perspective of the type of work either could undertake.

Someone who works through an online freelance agency still works to a (very) short term contract.

And how would a client who hires contractors describe the way said contractor works? Often, they’d say that he or she works on a freelance basis.

It’s easy to see how the lines blur.

However, that’s neither the case for a mortgage lender, nor us as their broker. There’s a very real difference between the way we appraise contractors and freelancers. It all centres around the nature of your contract.

A freelance contract, in our experience, would look like this:

  • work invoiced on a ‘per task’ basis;
  • cost to client (often) quoted per task;
  • no long term commitment between the two parties;
  • assignments ordered on an ad hoc basis;
  • worker responsible for raising, submitting and chasing invoices;
  • no set hours;
  • work at home or specific site, often under their own steam.

A contractor’s modus operandi is quite dissimilar:

  • work is invoiced on a per week or monthly basis;
  • cost to client is for the time, not the specific task;
  • commitment for three, six or twelve months;
  • assignments ordered through agency for specified duration;
  • agency responsible for invoices, based on a signed and submitted timesheet
  • hours coincide with client’s business hours;
  • contractor works on-site with client and employees.

In this sense, contractors do somewhat resemble employees. It’s this similarity that enables lenders to offer mortgages using contract-based underwriting.

True, that resemblance may cause problems in other ways, such as IR35. But in reality, your risk is no less than an employee who gets head-hunted once or twice a year. When lenders appreciate this, it’s what gives contractors an advantage.

For those freelancing, in our interpretation, all is not lost. Your accounts should demonstrate ongoing income, preferably rising year-on-year. It could be that you’re better off opting for a self-employed mortgage. Lenders will, however, base the amount you can borrow on those accounts, not on any current contract.

Author: John Yerou

John Yerou is the owner and founder of C&F Mortgages; a trading style & trade mark of the award winning Mortgage Quest Ltd. One of the most recognised names in providing mortgages for contractors and freelancers across the UK.

In 2004 John began his career in Financial Services as an independent mortgage adviser and broker. John has been instrumental in negotiating bespoke underwriting for contractors with high street lenders.

His presence in the industry as a go-to expert is growing by the day and he is regularly cited and writes in publications both locally and nationally.

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