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Arc builds returns on residential property

Arc Capital & Income has introduced a capital-protected bond that allows investors to profit from rises or falls in the UK housing market.

The Arc bricks and mortar plan is linked ot the Halifax House Price index for a six-year term.

The Halifax House Price index was launched in 1983 and is comprised of monthly house price data covering the whole of the UK. It is based on a sample of around 45,000 purchases a month that represent a range of properties, locations and prices.

Investors in this plan will returns of 30 per cent above the index movement, whether that is up or down, provided it does not fall by more than 30 per cent.

For example, if the index rises by 20 per cent, investors would receive growth of 50 per cent of the original investment. A fall in the index of 20 per cent would give investors 10 per cent growth, while a fall of 30 per cent would produce no growth. If the index stays the same, investors will receive a 30 per cent return.

Investors will also get their original capital back at the end of the term, regardless of how the index performs.

Arc says there has not been an occasion where the index has been 30 per cent or more below its level six years earlier. It says the biggest decline was 12.7 per cent, which happened in the six-year period between May 1989 and May 1993.

This plan could be useful for cautious investors who want to diversify into UK residential property now prices have fallen, rather than at the market peak. However, there may not be the appetite for this among investors who have been bombarded with negative mortgage and house price data.

Capital protection may provide some comfort but there is a risk of ending up with no growth on the original capital after six years.

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