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
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.