The house price bubble that burst following the 2008 recession has made this market particularly notorious. However, with newly introduced UK regulation and more stable movements, betting on a house price index is no longer high risk.
How Do House Price Bets Work?
Of course spread betting on house prices does not involve any one particular property; the price offered by the company is based on an index – this means that you are betting on the average price across the UK and price movements reflect the market as a whole. Spreads start from 2 points and increase, depending on how many quarters your contract includes. For example:
Nearest quarter: 2 points
Near quarter: 2.2 points
Far quarter: 2.5 points
Farthest quarter: 2.8 points
Spread sizes will vary from company to company
If you choose to roll over your contract into another quarter, you will have to open and close your bet – incurring the cost of the spread.
One common use of house price spread betting is to hedge against the value of a trader’s own home. i.e. if you are concerned that your house price might fall, you ‘buy’ the market in order to negate some or all of your losses.
Spread betting on the house price market is the same as any other traditional spread bet; if you think the market is going to fall then you sell, and if you think the market is going to increase then you buy. The price is often quoted in £1000s i.e. a price of 145.8 equates to £145,800.
House Price Spread Betting Example
Early in 2012, a poor outlook in the housing market lead to a decrease in the house price index and therefore the price offered to you on a spread betting platform. It’s now September 25th 2012 and you’re convinced that the market has reached a trough and will soon increase. You decide to buy the market with a spread of 142.4/145.2 at £40 per point.
Two months pass and contrary to what you had hoped, the price drops to 140.0/142.8; you decide that things are looking to only get worse and you close your position.
Opened: 145.2 / Closed: 140.0 / Difference: 5.2 / Profit: -£208