Originally published on iNews, on March 14th 2019, by Claudia Tanner.
The real barrier for millennials owning a home is not the mortgage – it’s the deposit. Saving for this can take years and prove frustrating.
Indeed, in 2018, the average UK deposit was £32,841 – around 15 per cent of the average property price, Halifax found.
But now a new scheme has launched – said to be the first of its kind – that aims to help first-time buyers to get onto the property ladder faster.
StepLadder calls itself a “collaborative deposit solution” rather than a savingsaccount since it doesn’t pay interest. It works by matching people into ‘circles’ based on the amount they want to put aside each month and for how long.
Every month one member of the circle is selected at random to ‘win’ their full deposit. It means that one individual, or couple, will be ready to collect their keys to their new home after four weeks of saving.
The company says that by saving as a group like this, 87 per cent of members reach their goal quicker than if they were saving alone. In an eight-person circle, for example, that applies to seven out of eight.
So how does it work, and is there a catch?
‘It’s a no-brainer’
Shaan Ahmed, who is planning to buy with wife Yasmin, both 28, had amassed a nest egg of £15,000. It took two years of penny pinching to get there and the couple moved back to Shaan’s family home in Leeds to escape renting in London.
They also took advantage of a Help to Buy: Isa, a scheme which helps first-time buyers by boosting their savings by 25 per cent. For every £200 you save, the Government will pay in a bonus of £50. The maximum bonus you can receive is £3,000.
But still their efforts were not enough to reach their goal of saving a 10 per cent deposit on the type of house they wanted.
Then entrepreneur Shaan, who launched property crowdfunding platform UOWN, stumbled across Stepladder and he and Yasmin, a teacher, decided to use the scheme to plug the gap. They joined a group of people who each pay in £1,000 a month for a year and ‘won’ their deposit of £12,000 after four months.
It means they have been able to put an offer on a £275,000 three-bedroom detached house in West Yorkshire.
“It’s a no-brainer really,” said Shaan. “There’s 12 members in our circle and 11 will get their deposit faster than it would take them to save up for the year. Only the last person won’t benefit, but they will still have raised their deposit in the same time as if they had saved on their own.
“The scheme makes you commit to saving for your deposit, instead of intending to put the money aside but ending up spending it.
“You here a lot about ‘generation rent’ but there is help out there for first-time buyers and it really is possible to get on the property ladder even if you’re on an average salary, outside of London anyway.”
What’s the small print?
You can save from as little as £25 a month. The firm says the usual amounts range from around £500 to £1,250 per month for circles that last between 24 and 48 months.
Members are charged monthly fees of between 3 to 5 per cent depending on the size of the circle they join.
So if you paid £1,000 a month, that’s a charge of up to £50; up to £600 a year. The last person to receive their cash has these fees waived.
If your circumstances changed and you are no longer able to pay into the scheme, you can drop out any time and get your payments back (less the administration fees), although you may have to wait until the end of the term.
StepLadder carries out credit checks on all members. The company says it has insurance to ensure that no-one is affected by someone else dropping out from their group.
A group’s pot of money is held in a client account with Barclays, separate from Stepladder’s operating funds. So that people don’t run away with the funds once they win the draw, Stepladder holds onto the cash until contracts are exchanged on the property; it is then paid via the buyer’s solicitor.
After a ‘winner’ has got their deposit, they must go on making the regular payments for the duration of the agreed term or else face court action and debt collectors, as if they had defaulted on an unsecured loan.
The company said another bonus is that members get a discount on solicitors and surveyors arranged through StepLadder.
Are there any downsides?
StepLadder has been given Financial Conduct Authority approval but is not covered by the Financial Services Compensation Scheme (FSCS), which protects customers when authorised financial services firms fail.
It promises it has “wind-down funds set aside in case something happens to us”, but without FSCS authorisation – which it plans to apply for “in the foreseeable future” – nothing is guaranteed.
Additionally, Ben Yearsley, director at the advisory firm Shore Financial Planning, is concerned that the obligation to continue to contribute to the scheme could complicate attempts to get a mortgage.
He told i: “It provides a solution if you’re impatient to save up by yourself for a house deposit, but it will cost and I don’t see how you gain anything except time.
“These days when getting a mortgage, banks will go through your finances with a fine tooth comb to assess your expenditure, and it may not help being tied into a regular savings scheme.”
However, Stepladder says it carries out affordability checks to make sure anyone who signs up can afford mortgage repayments on top of any remaining contributions to their circle.
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In the NewsMatthew Addison
Matt is the Founder and CEO of StepLadder. He started StepLadder to make a lasting positive impact on UK first-time home buyers and fix a broken system
