Profit from house price rises – with a difference
03-15-2014
Category: Investments
The traditional way to profit from rising house prices has been to invest in property, refurbish it if needs be, then sit back and watch as the price starts to rise. Property developers have made a fortune by using this very system, but of course, it doesn't come without its risks.
The housing crash left a lot of people in negative equity, and even though the market has seriously picked up, many could still be reluctant to take the plunge. Add to that the issue of savings rates languishing at record lows and a lot of investors have been looking for a meaningful alternative, ideally without the inherent risks or the outlay involved in buying property outright, so what if there was one?
Well, there could be. A new investment product from Castle Trust, known as the Protected Housa, offers returns directly linked to the performance of the Halifax House Price Index – so if property prices rise, so will your profits.
It works like this. You put in your investment (a minimum of just £1,000) which is valued according to the level of the index in that month, and keep it there for a term of five years. If the index has risen by the end of that five-year period, you get back 100% of the increase – the return is entirely uncapped, so the more prices rise the more you could get back.
Even if the index is lower at the end of the five years, your original investment will be returned. It's a capital protected product so your initial investment is safe from any potential price drops – so long as you keep the money invested for the full five years (fail to do so and you may end up with less than you put in).
It's a unique way for investors to benefit from rising house prices, depending on their attitude to risk, and could be the ideal solution for those seeking an alternative to traditional fixed rate bonds, with the minimum investment of just £1,000 likely to appeal to a broad range of investor profiles. Considering how rapidly house prices are rising it could generate measurable returns - just bear in mind that past results are not a reliable indicator of future performance - and even if the market collapses your capital will be protected.
Of course, it isn't the only savings and investment product that could be beneficial and all your eggs should never be put into a single basket – make sure to divide your investments between a number of sources, including ISAs and saving towards a pension to maximise your tax-efficiency – but it could be a viable option for those seeking to make the most of rising property prices in a whole new way.