Could P2P help build your first house deposit?

It’s no secret that young people are finding it harder than ever to buy their own home. Getting on the housing ladder, once a rite of passage for the vast majority, is an increasingly distant ambition for many. The Resolution Foundation estimates that one in three millennials in the UK will never be homeowners, and that by 2025 only 10% of 16-34s on low-middle incomes will be able to afford a home – and that’s regardless of whether or not you cut out the avocado toast...

It’s a trend that has been snowballing over the last few decades. The Institute for Fiscal Studies has shown that, between 1997 and 2017, the proportion of 25-34 year-olds owning their own home fell from 55% to 35%. In that time, young buyers have faced the reality that house prices have risen by 173% across the UK (and 253% in London), while their incomes have gone up by only 19% in real terms.

Rising rental costs have also eaten into the ability of many to save for a deposit, as the amounts needed have only grown. Government schemes designed to support first-time buyers are also dwindling: it won’t be possible to open a Help to Buy ISA after the end of November, while the overall Help to Buy scheme – which provides equity loans to help people buy with smaller deposits – is set to end in 2023.


Pulling out the stops 🏎💨

What’s clear is that, if young people are serious about buying their own home, they need to put more money aside than ever, probably for a longer period of time. The disparity between wage and house-price growth means that, for many, it won’t be possible to build up a viable deposit simply by putting money into a savings account. With interest rates still near rock-bottom, prospective first-time buyers might start to think about making their savings go further – looking at investment opportunities that can grow their deposit fund to keep pace with the housing market.

Once, the choices were clear: you could keep money in the bank, or invest in the stock market. The former offered safety but lower returns, while the market is the home of risk-reward: the possibility for boom or bust, depending on the market cycle and what stocks you choose to invest in.

Enter: peer-to-peer lending 🥊

More recently, alternative investment options have started to emerge, giving investors a new way to build up their house deposit. One of these is peer-to-peer (P2P) lending, where you invest in loans and earn back a share of the interest paid by the borrower, who can range from businesses to consumers and property investors. P2P is fast becoming part of the mainstream, with over £9bn of loans having been facilitated by major platforms in the UK to date. They offer a new form of finance to borrowers, and an opportunity to get a foothold in investment categories – such as property or fast-growing businesses – that have historically been out of reach for the average man on the street.

Although you’re still putting your capital at risk with P2P, it offers something that can bridge the gap for investors between the insufficient returns of cash and the high stakes of the stock market. In particular, the market has been volatile over the last year, with a significant sell-off in the autumn of 2018, a rebound for large parts of this year, but risk factors ranging from the US-China trade war to the slowing global economy that make the near-term future unpredictable.

With P2P, consumers can access the kind of interest they may once have expected from a savings account. At Growth Street, our investors lend money to high quality UK businesses in a series of 30-day loans. What’s more, so far no one has lost any money investing with us– although this of course is no guarantee of future performance.

Like any investment, your capital is at risk when you invest; if borrowers default there can be delays in returning money to investors and even capital lost. Also, it’s important to bear in mind that, unlike with your savings account, investments made through peer-to-peer lending are not covered by the Financial Services Compensation Scheme.

The returns of P2P may not make you a millionaire overnight, but for people considering how to build for a house deposit without risking it on the volatile stock market, it offers an alternative to the traditional options that can genuinely grow your capital.

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(Your capital is at risk when you lend to businesses. Lending through Growth Street Exchange Ltd is not covered by the Financial Services Compensation Scheme.)

Written on in Investing