Is Step Ladder A Good Way To Save For A House?

Saving up to buy your first home is a long slog. To amass the 10% cash deposit required by many mortgage providers, plus the fees and other costs of buying a house, savers are having to find a way to raise tens if not hundreds of thousands of pounds – a feat that can take years and feels outright unachievable to some people. So, if there was a way to save your deposit and get your foot in the door of your dream home more quickly, you’d at least be curious, right? Well, step up, Stepladder.

What is Stepladder?

Stepladder is designed to help first-time buyers raise the deposit money they need to buy a property more quickly. You team up with other savers who have a similar deposit target and can save roughly the same amount as you every month, and all pay into one pot. Each month, Stepladder chooses one of you at random to receive your full deposit from the pot. You all continue to pay in – even if you’ve already been chosen and have received your deposit - and this process repeats until everyone has received their deposit.

Stepladder is both an investment and a loan

Stepladder is a type of peer-to-peer lending, where individuals are placed in groups and lend to and borrow from each other directly. When one person receives their deposit from the Stepladder pot, technically it’s being lent to them by the other people in the group. Continuing to make payments after you’ve received your deposit acts like repaying this loan, and makes sure there’s enough money in the pot to give out another deposit each month, too. By the time each person paying into your pot has received their deposit, everyone will have both paid in and received the same amount of money back. So, all the loans cancel each other out and nobody owes anyone anything.

Because Stepladder is a type of loan as well as a way to save, using them will be included in your credit report, and paying into your Stepladder pot could help to improve your credit score. If you stop paying before you’ve agreed to, then this could impact your credit score negatively.

How does Stepladder work?

While all this lending and borrowing sounds like it could be pretty complicated, it’s actually quite simple in practice. Let’s break it down.

Sign up to Stepladder and go through their screening and onboarding process, which includes questions about your saving ambitions, and a credit check
Get placed in a “circle” – a group with other first-time buyers with similar savings goals to you
Make sure the payments are affordable for you, both now, and if you start repaying a mortgage while still paying into your Stepladder circle. If they aren’t, back out now!
Join the circle and make payments every month for a set amount of time, according to the requirements of the circle. You’ll also pay an admin fee on top, that’s 3-5% of your monthly payment
Receive your deposit when you’re selected at random from the members of your circle in Stepladder’s monthly draws. You’ll only ever receive your deposit once
Keep making payments until the end of the circle to repay what you’ve borrowed from the group, and make sure there’s enough money in the pot for other savers to receive their deposits

What happens if my – or someone else’s – circumstances change?

If your circumstances change at any point and you find you can no longer afford to pay in to Stepladder, then it’s important that you get in touch with them straight away. Your circle will have a dedicated “host” – someone who works for Stepladder who is there to answer questions and provide you with help if you need it – and it’s this person you will need to speak to.

Remember that with Stepladder, the money you pay in is both investing your savings and repaying a loan that you will get at some point during the life of your circle, so it counts as credit and will be included in your credit report. Stopping your payments may be recorded on your credit report and could affect your credit score.

Dropping out of your circle may also affect you in other ways:

If you haven’t been selected to receive your deposit yet then stopping your payments means you will not be included in future monthly draws. You will be able to get your money back, but may have to wait until the planned end of the circle for it, and this could be a long time.
If you’ve received your deposit, but haven’t withdrawn it from Stepladder yet then Stepladder could block you from withdrawing it if you stop making your payments.
If you’ve already received and withdrawn your deposit then your credit report could show that you haven’t repaid the loan you were given to fund your deposit. This will impact your credit score and affect your chances of being approved for credit – including a mortgage if you haven’t taken one out already – in the future.

If you or someone else in your circle experiences a change of circumstances or stops making their payments for any reason, then Stepladder have a number of measures in place to protect the other members of your circle and make sure that one person dropping out does not affect everyone else being able to use the service and be awarded their deposit as normal.

Is my money safe with Stepladder?

When you invest money, either in a peer-to-peer scheme like Stepladder or another type of investment, your money is at risk to some extent. As we’ve touched on already, Stepladder have put a number of measures in place to keep this risk as small as they can.

Stepladder say they also have funds set aside to make sure you get your money back in the event that anything happened to them as a company. But, it’s important to bear in mind that money you pay in to Stepladder is not covered by the Financial Services Compensation Scheme (FSCS). This means that if Stepladder ever did have to close down, it’s not guaranteed that you’d get your money back.

The advantages of saving with Stepladder

You could get your deposit money quicker than by saving on your own, as you have a chance of receiving it every month that the circle is running for
You can use it alongside Help to Buy and other government savings schemes. Because the government cap the amount you can save and receive a bonus on, many people put any additional savings they have in a different account. Stepladder could be an option for you if you’re in this situation.
You’ll get access to discounts on some of the costs you’ll face while buying a house, such as solicitors’ and conveyancing fees, and mortgage brokers and advisors.

What are the downsides and risks?

You might be the last to be picked – if you’re the last person in your circle to receive their deposit, then you won’t be able to buy a property any sooner than if you’d saved by yourself. But, at least it won’t take longer!
You’re not covered by the FSCS – although Stepladder have their own measures and protections in place, not being covered by the Financial Services Compensation Scheme means there’s no guarantee you’ll get your money back if Stepladder closes down.
If you drop out, you may not get your money back straight away – if your circumstances change and you have to drop out of your circle, you may have to wait until the planned end of the circle to get your money back. That you’ve dropped out and stopped making payments could also be included in your credit report and affect your credit score.

There’s no doubt that putting your savings into Stepladder could speed up your house buying significantly, and even in the worst case scenario it doesn’t slow you down. But, like all investments, your money is at risk. So if Stepladder sounds like a good fit for you, make sure you read up on it further and ask them any questions you have before you join a circle.

The information in this article is all correct at the time of publishing. If you spot something that looks out of date, then please let us know on [email protected]