First-time BuyerApr 11 2019

Peer-to-peer scheme for first-time buyers launches

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Peer-to-peer scheme for first-time buyers launches

As part of the project Stepladder matches savers with other members who have similar goals, which effectively creates a 'circle' of members who pay a fixed amount each month.

It then works on a lottery basis to determine the point at which each member receives the full amount. A computer algorithm selects one of the members to receive the full amount every month until everyone has received their deposit.

For example, Stepladder would bring together 10 people who wanted to save £10,000 each. For 10 months, the 10 people pay in £1,000 to the group pot, leaving the group pot at £10,000 every month and this £10,000 gets awarded to a member on a monthly basis.

According to Stepladder, 87 per cent of members get their deposits faster this way than saving alone and are three times more likely to reach their savings goal.

The firm works as an appointed representative of More Lending Solutions which is regulated by the Financial Conduct Authority for peer to peer lending.

Speaking to FTAdviser, chief executive of Stepladder, Matthew Addison, said he felt the scheme could become successful within the UK.

He said: "It’s peer to peer savings which is a similar principle to how building societies became successful in the UK. It plays on that and people like the community feel.

"Each circle has a host which acts like the old-fashioned branch manager of a building society and will answer queries and help people along their saving journey.

“I think there’s a need for collective finance in general and in the past year, we have seen 10 times the number of people engaging with us at Stepladder and there are 12 times the number of people applying to join Stepladder.”

Lucy Mullins, co-founder of the firm, said Stepladder wanted to support people through their long-term saving journeys.

She said: "Our circle structure is a really great motivator for people to achieve their saving goals. Also, once a member receives their deposit, we can connect them with mortgage brokers and lenders and guide them through the ‘what happens next’ part."

Ms Mullins explained that members would still receive their payments if someone dropped out of the group.

She said: "We built a lot of flexibility into the system because we know people’s situations change.

"If someone wins the deposit, it has to be used to buy a property until everyone has earned their deposit. If someone wants to drop out before they’ve received their deposit, they can get their money back once everyone has received the funds, unless we can find someone to fill their place.

"If someone has been awarded the deposit but has not bought a property, the deposit would be returned to the group as it remains with Stepladder until you buy a property.

"The worst case scenario is that someone has used the money to buy a property. In this case, a member cannot drop out of the circle as they would owe the circle the remaining payments.

"However if they become sick or unemployed we have payment waiver cover in place to make payments on their behalf. We would work with them on a repayment schedule and this would not affect other members of the circle."

But Craig Parkinson, mortgage and protection consultant at Continuum, said: "I am not too sure on this approach to saving. If the ‘lucky’ person wins in the first month then they are still committed to paying £1,000 per month for however long. 

"There must be a tie-in clause otherwise the moment someone does win and uses the money to buy a house, they would just leave, and this could affect the savers' ability to get a mortgage or how much they could borrow."

A spokesperson from Stepladder also said the firm engaged directly and confidentially with many national banks and building societies to align their underwriting with the bank’s affordability criteria.

The firm said Stepladder was an acceptable source of deposit to these lenders and stressed they were able to introduce members to several nationwide mortgage brokers and a number of mortgage providers through their support scheme.

The spokesperson said: "Most of our members that have been awarded their deposits so far have been introduced and are getting mortgage agreements in principle from these organisations as they start to hunt for properties.

"Our first member to buy a home, Shanae, got her mortgage through the mortgage broker we introduced her to."

Ruth Whitehead, director at Ruth Whitehead Associates, said the scheme would only be advantageous for those who were picked within the early stage of the timeline.

"It would concern me because often when you’re looking to buy a house, you need the money straight away and you need to be in control of your finances. I would prefer to maintain my money individually.

"Personally, I would rather borrow money from family or another source such as Help to Buy to bridge the gap. I wouldn’t want my finances involved in another person’s timeline."

Ms Whitehead also noted Stepladder charged a monthly fee for the service which is typically between 2 and 4 per cent of the monthly contribution, based on the length.

She added: "With this monthly charge, what’s the difference between you taking out a loan which you have complete control over?"

Stepladder confirmed the fee was used to cover features such as secure holding, the payment waiver, credit bureau costs and the cost of a 'circle host'.

imogen.tew@ft.com