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Newcastle bond tracks property market

Newcastle Building Society has put a different slant on guaranteed

bonds with its guaranteed property bond.

The bond was designed to allow investors to benefit from a rising

property market, rather than gamble with potential growth on volatile

stockmarkets. It works in a similar way to guaranteed equity bonds,

but is linked to the performance of the Halifax House Price Index

rather than a stockmarket index.

Investors can choose from two versions of the bond, a three-year

version or a five-year version. To calculate the final returns, the level

of the House Prices Index is recorded at the start of the term and

again at the end of the term. The three-year bond offers 100 per cent

of any rise in the index, while the five-year bond offers 120 per cent of

any rise in the index. Both versions guarantee the return of the

original capital.

The bond could suit people who are keen to invest in residential

property without the risk to capital that property funds can pose, and

without the responsibilities that go with buying property to let. It also

enables Sipp investors to gain exposure to residential property.

Sipps allow investment in commercial property only, so the bond,

which is classed as a cash deposit bond, could allow investors to

diversify through indirect exposure to residential property.

Linking returns to house prices is an interesting concept that

Britannia International is also exploring with its double index growth

bond for expat investors. Property prices have shot upwards at a

rapid rate in recent years, but some investors may feel it is only a

matter of time before it starts to slow down as interest rates rise.


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