Ways to counter a property market crash: Hedge your bets

Friday, November 21st, 2008 | house price forecasts

With the current condition of the UK housing market and various sections of the UK media predicting a further deterioration in the property market, what is there to do to save your properties value other than sell? There is one option to consider before calling up your local estate agent- Spread-Betting.

The spread-betting firms allows you to bet on the rise or fall of prices in either the UK as a whole or on 11 individual regions. The firm offers a range on something happening, such as the range of change of average property prices. This range of change is referred to as the “spread”.

As a betting customer, you can bet higher or lower depending on which direction you believe the market will head over the next four quarters. If you guess the correct direction, you win! And what you win depends on how far the result of the property market change deviates from the spread times how much you bet.

Example:

  1. If the average property price is currently £145,000, the betting firm may offer a spread of say (£140-£150k)
  2. If you believe the market will fall you need to ask yourself, “by how much will it fall?”
  3. Say you think the market will fall to the average property price being roughly £135,000
  4. So you bet £1000 on each point decrease :
  5. If the market does fall, you will win your bet times how many points below the bottom of the spread the final average price has become. For example, if the average price for a property is now £136,000, which is 4 points below the bottom of the spread, you would win 4 X £1000= £4000

All of the profits are tax free and all costs to you are included in the spread. Finally something with no hidden charges!

A house price index provides the basis for the spreads offered by IG Index.  The index breaks down its property price information nationwide and regionally which is what allows you to bet two different ways.

As of right now, IG Index has suspended the acceptance of bets and have briefly closed the books on the property market betting. Because of the overall consensus that the UK property market is headed towards a creash, the only bets being placed have been for a decline in the price indices. Until the next quarter, you will not be able to place your bet with IG Index.

But once those doors are open again, make sure you’ve informed yourself on the price indices and property prices and search for regional and nationwide property sales prices. That is of course unless the fear of a market crash has already forced you to sell as the sole way to prevent a loss.