RBS will let investors bet on property falls

Published 14th Feb 2010

The state-owned bank is launching a product linked to Halifax's house price index in the next six months


State-owned Royal Bank of Scotland plans to launch a product in the next six months that will allow investors to bet on house price falls.

The product, which will be linked to Halifax’s house price index, could prove controversial because RBS, which is 84%-owned by the taxpayer and Britain’s fifth-largest lender, is inextricably linked to the health of the housing market.

The plans will be offered via RBS Markets, a division of the bank that specialises in “structured” products, which let you bet on the direction of a market or index. It already offers products tracking gold, emerging markets and agricultural commodities, but this would be the first one linked to house prices.

The move comes as some commentators fear the January lull in the property market could turn into a “double dip”. Prices rose only 0.6% last month, according to the Halifax index — significantly below the 1.1% average of the previous six months.

RBS has already tested the market for house price products, offering a bespoke plan called UK House Price Bear for a wealth manager late last year.

Its products use a type of derivative called a certificate, which is like an exchange traded fund (ETF) — a tracker that you can trade on the stock exchange.

Suppose the Halifax index in January stood at 550. A certificate might allow you to bet on the index falling over the next two years. If the index fell to 495 by the closing date, you would make 10% of your investment. If it rose to 605, however, you would lose 10%.

David Lake at RBS, said: “We want to offer access to asset classes that are difficult or expensive for retail investors to get exposure to. We will offer both bull and bear products, so they can be used as an asset allocation tool.”

Mike Hollings at Matrix Investment Management, which used UK House Price Bear, said: “For most investors, their home is a substantial portion of their net wealth.

“Our view is that if the economy does actually recover, which we are doubtful about, then a normalisation of interest rates will put pressure on housing affordability. However, if the economy does not recover then house prices are likely to suffer as confidence dissipates.

“Given the reliance the UK domestic economy places on the health of the UK housing market, this seems a good hedge to us.”

Source: ' Sunday Times '

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