This new property bond is available on a five-year, seven-and-a-half year or ten-year term with varying participation rates of up to 200% of any growth in the Halifax House Price Index. The bond has full capital guarantee and is available until 14 September 2004. It also offers a tiered commission rate up to 5%.
Newcastle's guaranteed property bond has a number of potential advantages over direct property investment. In addition to the attractive potential returns and full capital guarantee, property bonds provide a diversified investment, whereas exposure gained through direct property investment may be highly localised. Furthermore, this bond is available within a SIPP wrapper now. SIPP holders must otherwise wait until 2006 to be able to hold residential property directly.
Direct investment in property requires considerable initial investment. The average 15% deposit required for a buy-to-let mortgage is £22,517 (taking the average house price at £150,111). The Guaranteed Property Bond has a minimum investment of £500 and maximum of £1,000,000. (Source: Average of Halifax and Nationwide House Price figures for April 2004.)
Most importantly, if an investor is going to become a landlord, buy-to-let property requires further investment both in terms of time and costs. Maintenance and management (or liaison with management agents) are a necessity. Its value is not only based on the underlying asset but the rental yields and any void periods. A property bond is not affected by these factors.
People concerned about locking up their money for the long-term will be comforted by the availability of a loanback facility, which allows the investor to borrow a proportion of their capital invested at a competitive rate of the Society's SVR less 1% (currently 5.29%).
Robert Hollinshead, Chief Executive of the Newcastle Building Society, said:
"This is an ideal product for a client who wants exposure to property investment, via a building society account and without any of the risks inherent with direct investment. Buy-to-let has become an increasingly common aspect of many investment portfolios but others remain concerned about the risks. With returns of up to 200% of any growth in the Halifax House Price Index, this guaranteed property bond has great potential with no downside and makes a property-linked investment accessible to the smaller investor."
For information on the Property Bond, financial advisers may contact Tony Ibson on 0191 244 2221 or [email protected]
