I'm avoiding Castle Trust's house price tracker

by Ed Bowsher on 03 October 2012  |  0 comments
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Castle Trust may appeal to a small number of people, but it doesn't make sense for most people.

The Castle Trust HouSA is a new investment product that should track prices for residential property. It’s supposed to be a simple way to profit from rising house prices. Castle Trust says you don’t need to be a buy-to-let investor anymore.

The scheme is explained in more detail in Castle Trust HouSA offers chance to cash in on Halifax House Price Index.

It’s an interesting product, but I’m not tempted to invest. Here’s why:

1. Plenty of exposure to UK house prices already

I’m already heavily exposed to the UK housing market. I’d like to use any spare cash to diversify my wealth into other assets such as shares and bonds.

2. Flexible

The Castle Trust HouSA is an inflexible investment. You’re investing for a fixed-term and you can’t withdraw your money early.

True, buying a house isn’t a flexible investment either. It will normally take you three to six months to sell a property and prices can be quite volatile. But you can make a case that buying a house is more flexible than going with Castle Trust.

3. Income seems low

Castle is offering two options – the Income HouSA and the Growth HouSA.

The Growth HouSA doesn’t offer you any income but you’re promised a higher capital return than the Halifax House Price Index.

The Income HouSA only matches the Halifax House Price Index, but you’ll also get an income. That sounds good, but I don’t think the income is that great.

If you sign up for the three-year term, you’ll get 2% of your initial investment as annual income. If you sign up for the ten-year term, you’ll get 3% a year.

I’ve seen some buy-to-let properties offering rental yields as high as 5%, so I don’t think Castle Trust is offering a great deal here. What’s more, I expect rents to continue rising in many parts of the UK - but you won’t get any income growth from Castle Trust.

4. House prices are still high

I’d be surprised if house prices started to soar any time soon. The economy is still sluggish and house prices still look high using some valuation metrics – especially the ratio between house prices and average UK income.

So I’m steering clear.

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