Newcastle Building Society has established the income and growth property bond, a combination product comprising of a guaranteed growth bond and a high interest account.
The product is available with a term of three or five years. The guaranteed growth bond element is linked to the Halifax House Prices Index, which measures house prices in the UK.
The return investors get will differ depending on which term is chosen. The three-year term provides 100 per cent growth in the Halifax index, while the five-year term offers 120 per cent growth in the index. Investors also get their original capital back, regardless of how the Halifax index performs.
The high-interest account element is designed to produce income of 4 per cent gross a year for the duration of the term, whether that be three or five years. Like the guaranteed growth bond element, it does not allow any withdrawals to be made during the selected term.
House prices in the UK have been increasing rapidly over the last three years, which could make this bond more appealing to some investors than similar guaranteed products linked to a stockmarket index. The Halifax House Prices Index rose by 0.7 per cent between March and April 2002. It increased by 15.1 per cent between April 2001 and April 2002, as stockmarkets fought to recover from the recent downturn.
Splitting the product between two elements allows the twin objectives of income and growth to be met, which the property bond alone cannot deliver. However, growth in the house market is unlikely to be sustained at present levels and the slowing down of the growth rate would have an impact on investor's returns.