Could a ‘pardner’ scheme help you get on the ladder sooner?

Brought over with the Windrush generation, ‘rotating credit associations’ speed up saving, says Melissa Lawford

First-time buyers who have been cut out of the housing market by the withdrawal of low-deposit mortgages and the extension of stamp duty relief to all buyers for properties valued at less than £500,000 may find an unconventional alternative to “Bank of Mum and Dad” lending in the form of a randomised savings lottery.

“Rotating savings and credit associations” (Roscas) were brought to Britain from Jamaica with the Windrush generation. When immigrant Caribbean communities faced discrimination from banks and were denied loans, they supported each other with “partner” or “pardner” lending schemes.

Members of a Rosca contribute a set amount into a community pool, which is awarded to one person each week or month. It can cut by years the time needed to save a deposit.

Ade Olusola, 41, is a self-employed project management consultant who was struggling to save to buy a house.

“On the scale of one to 10 of the savings I needed, I couldn’t even get to level two by myself,” he said.

In May 2019 he joined a rotating savings scheme run by StepLadder, a start-up that was launched at the beginning of last year and is the first company to digitise the Rosca process in Britain.

Mr Olusola was in a “circle” of 25 people who contributed £400 a month to a savings pool. Each month a random allocation algorithm selects a member of the pool to receive the full collective sum. After just six months, when he had contributed £2,400, Mr Olusola’s name was drawn in October and he received £10,000.

Combined with £5,000 of his own savings, the money was enough for Mr Olusola to put down a deposit on a three-bedroom house in Rainham, Kent, which he bought for £299,000 just before lockdown. The property was newly refurbished. “It felt like moving into a five-star hotel,” he said.

He will continue to pay in £400 a month until April 2021, by which time every member of the circle will have taken their draw. But the process meant he was able to buy much more quickly than if he were saving alone.

The disadvantage is that members must commit to contributions for the full period. Savers do not earn interest on their money, but with Bank Rate at a record low of 0.1pc some may not feel this is a hardship.

Many Roscas are unregulated, though StepLadder is part of More Lending Solutions, which is regulated by the Financial Conduct Authority.

Another drawback is that someone in the circle has to be the last to receive their payout, but 87pc of members get their lump sum more quickly than if they had saved alone.

To date, 50 buyers have completed “home circles” (contributing up to £1,000 a month) through StepLadder, while another 100 have completed smaller savings schemes. A further 25 circles are currently running.

Other Rosca providers operating in Britain today include Portia’s Partnership Savings Club, which helps lower-income families save together.

As 5pc and even 10pc deposit mortgages remain scarce in the wake of coronavirus, the use of these schemes could become more common in this country. The “pardner” method is already widespread around the world: in Nigeria it is known as ajo, in China it is called hui, while in Brazil the term is consercio.

Savers do not earn interest, but with Bank Rate at 0.1pc some may not feel this is a hardship

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