Want to benefit from rising property prices, but can’t afford the price or hassle of ownership of a lump of bricks and mortar? Or worried about your property falling in value and want to protect yourself against this? Well, there are ways to do this, and one that’s becoming increasingly popular is spread betting on the house-price index.
David Jones, chief market strategist at bookmakers IG Index, explains: ‘Spread betting on property prices is growing, particularly with worries these past few months about the housing market. We have two main types of clientthose who want to benefit from the property market without the rigmarole of finding somewhere, paying stamp duty, a solicitor and all the rest of it, and a second group which is simply looking for a safeguard against their own home falling in value.’
Indeed, it’s the latter group which is behind the rise in this form of betting, confirms James Lippett, head of sales at Cantor Spreadfair. ‘We started offering this service about 2½ years ago, and there wasn’t a huge amount of activity initially, but it’s growing quite rapidly now, as more and more people have started to look at this as a hedge against the value of their property.’
What, in essence, this latter group is doing is betting that property will fall in value. If they’re right, they win money to offset the loss in value of their own house. If they’re wrong, they have the rising value of their home to console them when they pay off their bookmaker.
Spread betting isn’t for the unwarybut then you could say the same about property ownership itself. With spread betting, the more the price falls or rises above expectation, the more the bettor makesor loses. It works much the same way as share trading. Rather than betting on a definitive outcomesuch as Dilatory Doris to win the 2.30pm at Ascotit concentrates on the measurement of the outcome.
Bookmakers IG Index and betting exchange Cantor Spreadfair both offer spread betting on the Halifax House Price Index produced by HBOS, and bets can be laid on either the national or London index. (The Halifax index is seasonally adjusted to balance out the trend for prices to be higher in spring and summer, when more people are looking to buy.)
IG Index offers options for the next two quarters, Cantor on various dates to the end of 2010. The index is given in points, each point equating to £1,000. Thus, if the spread on the national house-price index for September is given at 186.0187.4, and you want to bet and think average prices will exceed £187,400, at this time you’d ‘buy’ at 187.4 points; if you felt they’d go below £186,000, then you’d ‘sell’ at 186 points.
Stakes are made in terms of pounds per point. Say that you believe that house prices will fall nationally by September, and are prepared to back your judgement to the tune of £200 per point, you would ‘sell’ at 186.
Presume, then, that in September the HBOS index is 183.5. Your winnings are £200 x (186183.5) = £500. But if prices rise, and the September Halifax index figure is 189.2, then you owe 3.2 points, or £640. However, if you see that the market is moving against you, you could close your bet early.
For instance, if in July the spread being offered is 187.3188.7, and you fear prices will rise even further, you could buy at 188.7, and take a loss of 2.7 points to save further damage to the wallet. Alternatively, you might want to close a position early because the market has moved your way and you want to take the guaranteed
profit available at that time.
IG Index 0800 409 6789; www.igindex.co.uk
Cantor Spreadfair 0800 011 1441; www.spreadfair.com
Spread betting essentials
* Spread betting is becoming increasingly popular as a way to hedge against the value of one’s property
* No fixed odds are involved; instead, stakes are made per point of the movement of the property index
* The more right you are, the more you win; the more wrong you are, the more you lose