Housa

House Price Trackers: Adding some diversification to a portfolio

House price growth is an enduring fascination of the UK population. Yet, unless able (and wanting) to purchase property, investors have not been able to access this £5 trillion1 asset class - until now.

Now you can invest in a House Price Tracker (called a Housa) – which tracks UK or Greater London house price movements, as measured by the Halifax House Price Index (HHPI).  So you can invest in the residential property market without actually having to buy a property. Given that UK house prices have risen, on average, by 6.0%2 p.a. since the inception of the HHPI in 1983 and Greater London prices have risen by 7.4%3 p.a. over the same period, including house prices in an investment portfolio may appeal to many different investors.

How do house price movements compare with other asset classes?

Like equities, house prices have risen and fallen over the years. However, housing (as an asset class) has a much lower volatility than equities. Analysis from actuarial consultants, Moody’s (March 2015),  shows the annualised volatility of the HHPI is 5.5% and 7.8% for the UK and Greater London HHPI respectively. This compares with 13% for commercial property2 and 16.7% for UK equities4.

In terms of future growth, Moody’s have predicted an average growth of 3.4% p.a. and 4.1% p.a. for the UK and Greater London Indices over the next 10 years5. This compares with a predicted 5.9% p.a. for UK Equities4 and 2.6% p.a. for Corporate Bonds6.  

Finally, residential property has low correlation with other asset classes. This means that house price trackers can be a way of helping to diversify portfolios for some investors.

Supply and Demand

There are many factors that influence house prices in the UK, such as economic climates. The most recent UK recession saw UK house prices fall, whilst there was strong growth during the boom years that preceded the credit crunch. However, one basic economic principle – supply and demand – consistently drives the market.

There is a fundamental lack of housing in the UK that all political parties have pledged to address. We have an ageing population, more and more single people and a growing population as a whole. This means there is a structural shortage of homes in the UK and this fundamental issue is unlikely to be addressed for the foreseeable future. This is why many market commentators predict continued house price growth in the future.

Who invests In House Price Trackers?

House price trackers might appeal to investors who want to diversify an existing portfolio or as an alternative to buy to let.  Not everyone wants to, or is able to, own investment property. Until recently, buy to let was the only way to invest in residential property aside from owning your home. These investments provide an innovative alternative with the added benefit of diversification. The small minimum investment means that more investors can gain access to housing market returns from just £1,000.

Other investors have seen these investments as a way of saving for a mortgage deposit – for the investor themselves or on behalf of younger relatives. This is because your investment is aligned with either UK or Greater London property prices (depending on which tracker you choose).

What Are The Features of A House Price Tracker?

  • These are investments over a fixed term – 2, 5 or 10 years depending on the product chosen
  • Returns are determined by any rise or fall in the Halifax House Price Index. Housas track the All Houses (All Buyers) Non-Seasonally Adjusted version of the Halifax House Price Index
  • Investors can choose to track an index that covers the whole of the UK or Greater London
  • There are two types of Housa:
  • Foundation Housa tracks or outperforms house price movements over the medium to long term and returns the amount of your original investment to you if the index is lower at the end of the investment term
  • Growth Housa: tracks or outperforms house price movements over the short to medium term
  • You can invest a lump sum from £1,000 to £1million
  • Housas are also eligible for a Stocks and Shares ISA and SIPP
  • These are provided by Castle Trust


What Are The Risks?

  • You risk losing capital should Castle Trust become insolvent
  • Your investment can go down as well as up and you could get back less than you invested
  • Housas should be considered as fixed term investments and you should not assume you have access to your investment prior to maturity. Castle Trust may agree to repurchase your Housa at a price reflecting the actual period of investment subject to an early encashment fee of 2.5% for UK Housas and 3% for Greater London Housas per annum (or part thereof) for the remaining period until the maturity date. Castle Trust will allow you to encash your Housa if, at the time of your request to encash, the volume of Housa redemption requests does not materially exceed the volume of new Housa applications. In such circumstances, Castle Trust may not agree to repurchase your Housa
  • If Castle Trust cannot meet their obligations you can seek compensation of up to £50,000 under the Financial Services Compensation Scheme (FSCS), provided you are eligible for FSCS protection
  • Returns on Housas are paid to you gross. Tax treatment depends on your individual circumstances and may be subject to change in the future
  • When choosing between the Greater London Index and the UK Index you should be aware that, based on historic performance, the Greater London Index has been more volatile than the UK Index

Please remember that investments may go down as well as up, and you may get back less than you invested. Past performance is not a guarantee or a reliable indicator of future results.  You also risk losing capital should Castle Trust become insolvent.  Housas should be viewed as a fixed term product and you may not be able to encash your investment prior to maturity.  If you are unsure about the suitability of this investment, please consult a financial adviser. This information is issued by Castle Trust Capital Management Limited which is authorised and regulated by the Financial Conduct Authority. Castle Trust Capital Management Limited is registered in England & Wales. Company number 07504954. Registered office: 10 Norwich Street, London EC4 1BD.

For more information please contact Chris Morris, our senior operations consultant, on 020 7384 7300.

Article sources:
1.  Hearthstone: http://www.hearthstone.co.uk/institutional-investors/residential-property-guide-1/compare-asset-classes/
2.  Figures calculated by Castle Trust using data published by Halifax (April 2015)
3.  IPD UK Total Return Index
4. MSCI UK Standard Series Total Return
5. Risk analysis report created by Moody’s Analytics for Castle Trust (March 2015)
6. Merrill Lynch Sterling Corporate Securities Index

Published on 22/07/2015