Castle Trust claims to give investors the benefit of property market returns without the hassle of owning a house
You would like to make money from the property market but can’t afford to buy a house. Or maybe you’ve thought about buy-to-let but can’t face the hassle – or find the idea distasteful. Perhaps you are trying to save up a deposit for your first home, or thinking about ways to help your child or grandchild on to the property ladder.
If any of these scenarios sound like you, you may be interested in a new company that claims to have come up with the first scheme of its kind allowing people to invest in the housing market without the costs of buying a physical property, and where the returns are linked to house prices.
Castle Trust says its new investments, called HouSAs, will unlock the UK housing market for people with £1,000 or more to put away, and could provide substantially better returns than a savings account – and they qualify as a tax-free Isa. They go on sale on 1 October but – and it is a sizeable but – they are for people with an appetite for some risk, as you are making a big bet on the housing market. If you invest in the Growth HouSA and house prices fall over the period, you will lose money. So if you are not comfortable with potentially getting back less than you originally invested, you should stay away.
The launch of Castle Trust – which is also offering a new type of mortgage with no monthly payments – has been a long time coming. The company was expected to go live late last year but has had to wait for the green light from the Financial Services Authority (FSA). Castle Trust has some heavyweight backing: it is majority-owned by private equity giant JC Flowers, and its board includes former FSA chairman Sir Callum McCarthy and ex-Tory minister John Gummer, now Lord Deben.
There are two sorts of HouSA: the growth version and an income one. With both, you invest a minimum of £1,000 and choose a fixed term: three, five or 10 years. Your return is dependent on the performance of the Halifax’s monthly national house price index (although there is no connection between Castle Trust and the Halifax). HouSAs qualify for inclusion in an Isa, Junior Isa or Sipp (self-invested personal pension).
With the Growth HouSA, the percentage rise or fall in the index over the period is multiplied by a stated amount to give you your return. The potential upside is greater, and the downside minimised, if you opt for a longer term.
As can be seen from the table on the right, which the company says is based on actual returns for the Halifax index, an investor will be in the money if there is a property boom. But if property prices are lower at the end of the term than at the beginning, he or she will get back less than was invested.
But can house prices defy the deepening economic gloom? On Thursday, the Halifax issued its latest monthly data, and said house prices fell again in August – by 0.4%. It added that UK property values “are likely to remain flat over the remainder of 2012 and into next year”.
Mark Dampier, at IFA Hargreaves Lansdown, says he remains to be convinced about residential property as an investment. While certain hot spots may see price growth, he is “pretty gloomy” about the general market, and reckons those looking to invest for a child or grandchild should consider a unit trust or investment trust savings plan.
A Growth HouSA is not an account, nor is it a fund. You are buying shares in Castle Trust PCC, based in Jersey. The company will buy back the shares at the end of the term at a price that gives you the agreed return, based on the performance of the index.
The income version of the HouSA works slightly differently. It allows you to get a fixed income paid every three months – between 2% and 3% of the original amount invested per year, depending on the investment period you choose. Castle Trust says it “provides an alternative to a buy-to-let property as a way of keeping pace with house prices and receiving an income along the way”.
An Income HouSA is a “loan note” (a type of corporate bond) issued by Castle Trust Income HouSA plc, a Jersey company. The price of the loan note at the end of the term is directly linked to the performance of the Halifax index, so the amount you receive will be your original investment adjusted for the rise or fall in the index over the term.
Let’s say someone puts £1,000 into a 10-year Income HouSA. If house prices were up 90% after 10 years, their HouSA would be worth £1,900, and they would also have pocketed £300 in income. If the index was down 30% after 10 years, their HouSA would only be worth £700, though they would have pocketed the £300 in income.
Castle Trust will be covered by the Financial Services Compensation Scheme. Investors can claim for losses of up to £50,000.
The initial charge when you invest is up to 3%, depending on your arrangement with your financial adviser – some will rebate commission back to the investor. The company advises people to take financial advice before investing.
Much of the money invested in HouSAs will be used to provide “Partnership Mortgages”. These are “shared equity” home loans aimed at buyers who already have a 20% deposit. Those who meet the lending conditions can get a 20% interest-free top-up loan from Castle Trust – allowing them, in theory, to access one of the competitive 60% loan-to-value mortgage deals on the market. While there is no interest to pay for the life of the Castle Trust loan, when they come to sell the house, they must hand over 40% of any increase in its value. If the property’s value has fallen, the company will share 20% of any loss.
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