Wage growth has been slow since the credit crunch, with average earnings per week rising by just £39 over the last five years to May 2016. The average weekly wage currently stands at £502, compared with £463 in July 2011, constituting a rise of just 8.4% in five years, according to this data from the Office for National Statistics (ONS). Furthermore, recent months have even seen a fall in average wages; in May 2016 the average weekly wage was at £502, which was £1 per week lower than April 2016, when wages hit £503 per week on average.
Compare that to the rise in house prices over the same period, and you get a real idea of the problem that faces anyone trying to save for a property. The Halifax House Price Index shows that, in a single year to June 2016, UK average property prices rose by the same amount as wages rose in five years (8.4%), making the average UK property now worth £216,823, with the average rocketing to £600,076 in London. Hard though it may be to believe, 8.4% was the lowest level of annual growth since July 2015, when it hit 7.8%.
So, first-time buyers trying to keep up with house price inflation seem to be fighting a losing battle, especially as the interest rates available on savings accounts are derisory, given the Bank of England base rate has been at its lowest ever level of 0.5% since 2009, and is expected to fall further in the wake of the UK’s Brexit vote. Add to that the fact that paying rent, which can in many cases be more than a monthly mortgage payment, will eat into your ability to save. So, the sooner you stop paying for someone else’s property through rent and, instead, start paying for your own, the better.
It is a little hard to believe that there has not been a different way for first-time buyers to try to save for their property deposit, given the sophistication of the UK’s financial services industry. However, StepLadder is setting out to change that by using a system that has been tried and tested worldwide but yet, to date, has passed the UK by.
StepLadder is a peer-to-peer lending platform with a difference, as it creates groups, or ‘circles’, of first-time buyers who are trying to save for a similar-sized property deposit, over an agreed period of time, in such a way that they could gain access to their full deposit lump sum as quickly as in one month.
The number of people in the ‘circle’ is known in advance, and the amount that will be paid in by you is also known in advance and will never change, but the benefit is that, since a group of people is paying into the fund collectively, one person will receive their individual deposit lump sum amount each month during the agreed period. This, therefore, potentially reduces the amount of time you have to wait to reach your required amount to buy your first property.
This could mean the difference between getting the property you have your eye on, and missing out because you cannot save enough in a short enough time to cover the deposit yourself. The lump sum is held by StepLadder until you, the borrower (this is deemed a debt once paid out to you as you cannot simply walk away from the ‘circle’ when you have your own cash, without completing your remaining payments), are ready to complete on a property purchase. The money can only be used for a property purchase, nothing else.
On average, you will get your deposit 45% faster than saving on your own and, before joining a circle, you will choose the amount that you’ll be putting in each month. The typical amounts range from £500 to £1,250 per month in circles that last between 24 and 48 months.
There is an administration fee of 5% per month, which covers payment processing, a dedicated circle host, insurance against a member defaulting, and other member services such as access to specialist property-buying experts. Furthermore, you will have access to a community of like-minded potential first-time buyers, in very similar positions to you, with whom you will have the option to communicate virtually, allowing you to swap experiences and tips.
The concept, while new in the UK, is tried and trusted elsewhere in the world, especially where a widespread need to purchase goods in a shorter period may exist, but access to borrowing in other formats is very limited. It is known as a Rotating Savings and Credit Association (ROSCA) and is widely used in areas such as Brazil and Kenya, where access to borrowing is limited for much of the population.
It helps these people buy much-needed items, such as farm machinery, far more quickly than they could on their own, and is why this principle works so well for first-time buyers battling against rising house prices. It is, therefore, expected to take off in a big way in the UK.
Lucy is Co-Founder and COO of StepLadder. She is passionate about health and fitness, and being a PANK (Professional Auntie No Kids!). She is a trained executive coach and loves cheerleading people towards their goals!