House prices are soaring and have outpaced wage growth in the last few decades. Consequently, it has become really difficult for aspiring homeowners to save enough money to get on the property ladder.
Enter StepLadder, a digital savings platform that believe the answer to saving can be found in tradition. They put a modern twist on the ROSCA concept – also called committee, gamea and many other names across the world.
In this article, we will give a comprehensive overview of their offering and provide our verdict on how it stacks up.
Here’s what we will cover:
- What do they do?
- How does it work
- Is it sharia compliant?
- What are the fees like?
- Can you trust StepLadder?
- How it compares against the alternatives
- Pros and Cons
What do they do?
StepLadder is a digital savings platform that helps people to save towards a house or any other saving goal they have. They are particularly focused on helping people to purchase their first home. To date they have helped people save over £1m.
They make money primarily through the admin fees they charge and also through referral fees for directing customers to one of their trusted partners (e.g. surveyors, solicitors and brokers).
How does it work?
StepLadder have savings circles that people can join for a fixed amount of time with a desired saving target. Here is how the process works:
- Join a circle that suits your saving goal.
- Every participant contributes the same amount each month.
- Each month, one person in the circle is randomly allocated the total.
- This repeats every month for the duration of the Circle, until everyone has received their deposit.
The central idea is saving in groups can help motivate you to achieve your saving goals. This product has a rich heritage with most cultures having their own name for it but the basic concept is the same.
Academics have defined it as a ROSCA (Rotating Savings and Credit Association). Some names you may recognise include committee (Pakistan), Gameya (Egypt) and Susu (Ghana).
Stepladder have taken this tried and tested concept and made it fit for the modern age. The entire process is automated and for their part, Stepladder take a small admin fee to manage all of the technology and payments.
What are the fees like?
Stepladder charge a monthly admin fee to cover their costs in providing their platform. This fee depends on your chosen circle but is typically within 2 – 5% of your total savings target. This is not an insignificant amount but if you are unable to save on your own, then it should definitely be worth it.
It may also be worth paying for if it means you are in for a 9/10 chance of putting your deposit together many months earlier than you would otherwise.
There are also late payment fees if you fall behind on your payments.
Is it sharia compliant?
In short, yes it is. Given how the product is basically a loan between members of the same circle, the key consideration is whether any interest will be present.
Looking at Stepladder’s offering and it is clear that there is no interest involved in the repayment of the loan. No one receives more than the amount they put in. So all clear on this front.
The only other question is whether the admin fee charged by StepLadder amounts to interest. In general admin fees related to arranging the loan are seen as interest. However in this case, the admin fee doesn’t amount to interest.
This is because StepLadder is not the lender but is instead a third party. So the fee isn’t for arranging the loan, it is instead a payment to them as a third party for the genuine work they are doing in managing the product.
For more on this, Mufti Billal Omarjee covered this in more detail in a webinar we hosted alongside Stepladder.
Can you trust StepLadder?
StepLadder are an appointed representative of an FCA (Financial Conduct Authority) regulated firm and therefore are on the FCA register. FCA regulation is important as it confirms that the company meets the FCA’s strict criteria designed to protect consumers.
It’s important to note that StepLadder is not covered by the Financial Services Compensation Scheme (FSCS). This is fine as they aren’t a savings scheme but instead operate a peer to peer platform.
What happens if somebody drops out or stops paying in?
In this case, StepLadder have stated it is their problem to deal with, not yours. They have financial measures in place that makes sure the Circle continues to run seamlessly for everyone else and you will not be affected by someone else dropping out.
What happens if StepLadder go bust?
This should be fine as StepLadder keep your money separate from their own accounts.
Members’ funds will be kept as “client-money”. This essentially means it will be separate from their operating funds and will be held as custody under each member’s name.
Stepladder have a really high rating on Trustpilot with 3 years’ worth of reviews.
All things considered, StepLadder look to be a safe place for your money.
How it compares against the alternatives
1. Do it yourself
You could just simply save yourself. If saving is not a problem for you then by going it alone you could save out on the admin fees.
The trade-off here is you have a strong chance of getting your total deposit faster with Stepladder than if you saved by yourself.
Of course, you could be the last one drawn for payment so that advantage would be nullified. It is up to you to decide whether the chance of getting the deposit together earlier is worth the admin fees.
2. Use a traditional savings scheme
The other alternative is to make use of the traditional savings product already present in your community or to set up your own informal group. This could work well if you are with people you trust and you could save out on the fees this way.
However this could require a lot of effort in terms of organising and looking after the scheme. Sometimes banks don’t like it and can freeze payment and shut down your account. Their concern is that they can’t figure out why you’ve suddenly been landed with a large chunk of money in your account.
The informal route could also get awkward in situations where you need to chase people for missed or late payments. Doing it informally also won’t help increase your credit score.
3. Alternative ROSCA providers
You could look for other ROSCA providers but StepLadder appears to be the only current mainstream UK option that is FCA registered. If you do come across any good options, please let us know in the comments.
Pros and Cons
- The majority of people will get their deposit quicker than if they saved on their own.
- It enforces saving for those who need help to do so.
- Can help improve your credit score.
- FCA authorised.
- Admin charge is non-trivial (2-5% of saved amount).
- Missed or late payments can have a negative effect on your credit score.
- If you have to drop out, you either have to wait to get your deposited money back at the end of circle or pay out the remaining fees to get it sooner.
- Certain Islamic banks won’t accept the advanced lump sum paid out to you via Stepladder as a legitimate portion of your deposit. We will be lobbying them on this as we think this is a bit silly.
We love how Stepladder have taken a simple concept practiced for hundreds of years and made it fit for the modern age.
If you are someone that needs help to save and don’t mind the admin fee, then this could be a great option. For many savers this will enable them to save their deposit quicker that they would have otherwise done so.
If you do decide to go for Stepladder, we’ve teamed up with them to set up a special IFG circle. If you would be interested in that, here is the link to sign up.