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Structured products will fund mortgage

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Castle Trust is launching income and growth structured products tracking the residential property market to help fund its 20 per cent top-up mortgages.

Investors will be able to access income and growth portfolios with a minimum investment of £1,000 over three, five and 10-year timeframes. The income housa product will match the rise and fall of the Halifax house price index and offers quarterly income. The annual yield on a three-year income housa is 2 per cent, 2.5 per cent on five years and 3 per cent on 10 years.

On the three-year growth plan, investors will get 125 per cent of any increase and 75 per cent of any losses. For five years, it is 150 per cent of increases and 50 per cent of falls and for the 10-year plan 170 per cent of rises and 30 per cent of falls.

Hargreaves Lansdown head of research Mark Dampier says: “There is not another product out there like this. However, the argument is whether the Halifax house price index is a good enough index or not to measure prices and it only deals with mortgages. Thirty per cent of property is not bought using a mortgage.”

Castle Trust head of marketing Mikkel Bates says: “The Halifax house price index is well known, representative and transparent rather than an index of indices which might give the impression that we could work behind the scenes to come up with figures. There are indices that record prices of all property but the problem there is quite a significant lag.”

Yellowtail Financial Planning managing director Dennis Hall says: “As part of an overall balanced portfolio, these products would allow an investor to participate in residential property in a manner not usually available. But scratch under the skin a bit and we find the products do not actually invest in property, you just have Castle Trust’s word that they will be able to repay the money when they say they will. In the meantime, they are using the capital raised to help fund the mortgage side of their business.”

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