How could peer-to-peer (P2P) lending help you save for a house deposit?
First-time buyers looking to live in the South East of England will need to stump up an average deposit of around £30,000 according to research released at the end of August by LSL Property Services, and the figure leaps to £62,253 in London.
With existing savings of £29,000, it would take you more than three years to get to £30,000 through a bank account paying just over 1 per cent interest. With Zopa, you’d need to lend out around £26,000 to reach the figure within the same three-year period.
To reach the average £62,253 deposit for a London property, meanwhile, you could lend out £49,000 with Zopa over a period of five years, or start with £40,000 and add £160 per month. All these Zopa projections assume a 5.2 per cent annualised return before tax, after a 1 per cent fee, and that you re-invest all interest payments.
Of course, there are risks. But since 2010, bad debt on Zopa has averaged 0.25 per cent. Further, now with a community of 57,000 active lenders, over £600m has been lent through Zopa.
There is also a Safeguard fund, currently holding over £5m, designed to step in and give you back your money, including interest owed, if a borrower falls too far behind on their payments.
To reduce risk further, your money is lent out in small chunks to different borrowers, who also have to pass a series of checks: they must be over 20 years old, UK residents for at least three years, must earn at least £12,000 a year, and have a solid credit history.
And while you will need to pay a 1 per cent fee to access your capital if it hasn’t yet been paid back by borrowers, you can withdraw money as it is repaid each month.