There are a number of ways of speculating or hedging on house price movements. Spread betting is the most popular way, although there the futures can also be used, but this tends to be used by professionals.
There are a number of advantages of spread betting on the housing market; the first is that there is already a liquid market as there are a number of other people betting on the market. This means that there are no delays or difficulties in market timing. However there are great swings in sentiment which can mean that there may be a poor day to enter the spread betting market.
Another advantage of spread betting is that there is a very good tax treatment. Although the principle private residence does not attract Capital Gains Tax, rental properties do. As spread betting is classified as gambling then there is no Capital Gains or Income Tax. This may sound odd to the new spread betters, but think it through from the taxman’s perspective; would you want to offset the losses of gambling against tax?
There is also no stamp duty, which is very handy for frequent traders. This is not the case with most properties over £125,000.
Spread betting can be done on a number of regional housing indices, which is extremely useful for those people who are hedging against adverse house price movements as it can be hedged against local conditions. The most popular indexes are the ones linked to the Halifax House Price Survey.
The biggest company in this market that offers these spread betting is IG Index. Until recently Spreadfair offered a competitive alternative, but with its recent closure IG Index is now the biggest player.
There are futures contracts available on the EUREX exchange called the “Property Index Futures Contract”. This is based on the Investment Property Databank. This is not well traded, at the moment, by retail investors partly because the Investment Property Databank is not often quoted in the press.