Sunday, July 6, 2008

Bonds linked directly to house prices – what a great idea (not!)

Mail on Sunday

"Falling house prices are delivering a double blow to tens of thousands of investors. Not only is the value of their homes dropping, they are also seeing returns on their savings eroded because they have fixed-term bonds linked to the value of property. And there is little anyone can do to protect their investments because of expensive exit penalties or onerous terms and conditions that prevent them getting hold of their money until plans mature. Banks including Abbey, Barclays, Bradford & Bingley, Newcastle Building Society, Skipton Building Society and Saga are among those that have sold these bonds, which link profits to the value of the Halifax House Price Index (HHPI). Halifax itself does not sell such investments."

Posted by drewster @ 07:05 PM (607 views)
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2 thoughts on “Bonds linked directly to house prices – what a great idea (not!)

  • “Banks including Abbey, Barclays, Bradford & Bingley, Newcastle Building Society, Skipton Building Society and Saga are among those that have sold these bonds, which link profits to the value of the Halifax House Price Index (HHPI). Halifax itself does not sell such investments.”

    I never knew such things existed. My feelings about this type of investment are mixed.

    Pro: an opportunity to cash in on a rising house market without all the tedious issues that go with property ownership and (presumably) more flexibility about the size of the investment..

    Con: it’s part of the speculative system that I have criticized in the past. Arguably just another form of gambling that gravitates wealth to the better off in the good times?

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  • mark wadsworth says:

    It begs the question – who is underwriting these, i.e. gambling on house price falls? Presumably the big property companies and banks, who stand to lose from price falls. And they are the experts, so why would anybody in his right mind buy them?

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