We have seen an advertisement in the newspaper about the Holiday Property Bond. We are very interested in the idea and have approached you for advice on it. We part-icularly want to know if it is a timeshare product and also if there are any other similar products that we could consider.
The bond you have read about is an offshore life insurance bond investing, after initial charges, in holiday properties.
It is issued by Isle of Man Assurance and your interests are protected in two ways. First, the PIA regulates the insurance company. Second, all the assets of the holiday property bond are controlled by HSBC Trust Corporation (Isle of Man).
You can encash the bond at any time after two years at a value linked to that of the properties and securities within the bond. Of course, the value of the bond can go down as well as up.
Encashment may be deferred for up to 12 months, however, as holiday properties may not always be readily saleable. You must also remember that the property values generally reflect a valuer's opinion rather than fact.
As a bondholder, you have an interest in all the bond's holiday properties. This gives you the right to go on holiday rent-free every year in
any of the holiday homes owned by the bond. This means you are protected against future inflation in the cost of holiday accommodation.
Many people think it is a timeshare scheme but this is not so. Timeshare owners buy one week or more each year in a specific development. They pay an annual management charge whether or not they use the property, plus an extra fee if they wish to exchange their weeks for those in another resort. Furthermore, if they decide to sell their timeshare, this can be extremely difficult.
The bond you are considering has a number of advantages compared with timeshare:
As a bondholder, you have the right to go on holiday in any property owned by the bond with no exchange fees.
You only pay further charges when you actually book a holiday.
You can apply to encash the unit-linked element of your investment at any time after two years at its then unit value although encashment can be deferred in some circumstances.
You can take as many holidays as you can buy each year with the holiday points you receive according to the level of your investment.
If all your current and brought-forward holiday points have been used up, you can use up to 20 per cent of your following year's points to book the holiday you want. You can also rent up to 10 per cent of the holiday points required for cash.
If you decide not to take a holiday one year, it does not mean you lose out. You can roll up your holiday entitlement for up to a year or receive a nominal cash payment if you prefer.
You can give or even sell your holiday entitlement to anyone you choose, with the proviso that you are liable if they damage the property.
The amount you want to invest will depend on your holiday requirements. The bigger the investment, the more holiday points you will be allocated each year.
Holiday points are reviewed regularly and adjusted to take account of changes in the cost of buying or developing holiday properties. Over the years, this is likely to provide a hedge against inflation. In addition, because you own a share in the assets of the bond, your investment has the potential for long-term capital growth.
Until now, there has been little competition for this product. Since it launched in 1983, it has seen a steady growth and now has in excess of £128m within its fund. There is, however, a new bond being launched which has a number of variations that might prove attractive. The KeyWorld Bond provides similar benefits with these noticeable differences:
It is a bond underwritten by a UK life insurance company. Therefore, you benefit from the protection afforded by the UK regulations and the Policyholders Protection Act.
It offers a much wider choice of holiday destinations through its unique link with RCI. You can choose from more than 3,500 resorts.
It is marketed via IFAs, who can advise you on the pros and cons.
It claims to offer better value and much greater flexibility than the existing products available.
The type of bond you have read about has proved to be a big success during the last 17 years and many people have enjoyed the benefits of quality holiday accommodation. However, there is now a new plan which needs careful consideration before a decision is made.