Bonds exploit property urge

By RICHARD DYSON
Updated:

 

OUR insatiable love for property means that as well as the homes they live in, most people want some of their long-term savings to be invested in bricks and mortar.

Martin Ellis, Halifax

Research by iAccount, a new pensions service from NatWest, found that 32% of savers said that residential property would grow faster in value than any other asset, while only 9% reckoned stock market investments would be best.

But how do you invest in residential property without risk? A number of savings institutions have tried to answer this question by launching guaranteed property bonds.

Savers' capital, provided it remains invested for an agreed term, will be returned in full whatever happens. The accounts pay returns linked to an index measuring house price growth.

The bond offer from iAccount is available only to pension investors. But for non-pension savers, two similar property bonds are available.

The first, from Newcastle Building Society, is a five-year scheme paying 110% of any growth in the Halifax House House Price Index measured between September 2006 and September 2011, when the bond matures. So if, for instance, the index is up 50% over the term, the return will be 55%, before tax.

The second deal is Abbey's Capital Guaranteed Residential Property Bond, which comes in two versions. The five-year version pays 100% of the Halifax House Price Index, the seven-and-a-half year version pays 125%.

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But analysts warn that the huge returns that property has made in the past decade may not continue and the rate of house price inflation has slowed. Halifax's index measured annual growth of 26% in 2002 but this fell to 2% last year. Halifax's economist Martin Ellis says: 'Increased pressure on households' finances will curb demand.' However, he has increased his prediction for price growth in 2006 from three to 5%.

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