UK Property Protector is a unique product that is designed to benefit anyone who has property assets in the UK or would like to invest in the property market.
This product acts as both an investment and an insurance solution, which protects against the loss of equity, due to falling house prices. Property Protector is intended to secure the current value of UK property assets, whilst also giving investors the opportunity to benefit from the depreciating UK property market.
The fund works by hedging against the devaluation of UK property prices. It does this by directly tracking the UK Property 350 Index, which provides an accurate guide to changes in the UK property market and acts as an indicator for changes in house prices.
UK Property Protector secures the value of any property by creating a ‘derivative option’ that retains its value against the UK Property 350 Index. This is a Mauritius-based fund, available only in GBP.
A Simple Example
“Let’s imagine a fictional Mr. Smith who owns property, which was estimated to be worth £200,000 at the end of 2007, with an outstanding mortgage of £80,000 and therefore equity of £120,000. He’s seen the market slip in the last 12 months and the reality is that even in that area it’s likely to be worth anything between £170,000 and £180,000, if he could find a buyer today.
Mr. Smith is now really worried it could slip further as unemployment increases, industry slows, exports and international trade drop and it is looking like it will take some time for the market to recover. He’s also concerned about his own position incase he is due to repatriate back to head office.
Luckily Mr. Smith made a one-off payment of £10,000 to buy a Property-Protector premium in December of 2007 to protect the value of his property. By the end of last year the value of that insurance was more than £96,809 (See chart below). Although Mr. Smith is concerned that the value might fall further and that normally he might just leave the policy in place and continue to use it to insure the property value, he took the opportunity at the end of last year to redeem his policy, pay off the mortgage and use the spare proceeds to re-insure the value of his property at current levels, paying a new open-ended premium of £9,000.
The good news for Mr Smith is that he is now mortgage free and his financial position has improved by £66,809 despite a £20,000 fall in the value of his property.
In fact the very good news for Mr. Smith is that since that point the 350 Property Index is down by a further 12.6% - Mr. Smith’s second Property Protector that he bought would now be worth more £20,000 already!