Newcastle Building Society is bringing in two new issues of its residential enhanced secure indexed (RESI) bond.
Issue four and issue five of the RESI bond are three-year guaranteed equity bonds which track the Halifax house prices index. The index follows changes in average house prices across the UK every month.
Issue four will offer an interest rate of 7.5 per cent for the first two years and will then pay a rate of interest equal to 50 per cent of the growth of the index over the term for the last year. Issue five will have an interest rate equal to two times any rise in the index over the three-year term. In the event that the index stays the same or falls in value, the original capital will be returned in full.
The housing market has seen a great deal of growth in recent years, prompting fears that the housing market is overheating. However rises in house prices have recently slowed slightly ahead of fears that the Bank of England might put up interest rates, and this has seen more sustainable growth.
In 1997 the Halifax house prices index stood at £68,504 for an average property. On October 4, 2000 it stood at £86,304, a rise of 26 per cent.