The best way to spread bet on UK property prices

Once again, UK house prices are under pressure. The Land Registry reported a 1.1% fall in March, while in April the Nationwide reported a 0.2% drop. So you might be tempted to take a punt on further falls using a property spread bet. Sadly though, the concept is better than the reality.

Through a broker such as IG index you could place a downbet on the future direction of UK prices as measured by the Halifax index. A typical bet wins or loses a fixed amount agreed up front per one point change in the index here, a £1,000 move in the value of an average UK home.

So, for example, if you are bearish on property prices between now and December, you could sell the current spread of 157.2-160. Alternatively, for March 2012 the equivalent spread is 155.5-158.5. But there's a catch.

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If you do sell the March contract, you are doing so when the spread (three points) is roughly 1.9% of the midpoint between the two prices (155.5+158.5 divided by two is 157. And three is 1.9% of 157). That's quite a wide spread given that for all quarters since 1975 the biggest quarterly falls were only around 1%. In short, the index had got to drop pretty fast by historic standards for you to make any money once the spread is factored in. Not impossible, but unlikely.

So what else could you do? Selling a house, banking the cash and renting in anticipation of a drop is expensive, slow and impractical - even assuming you can find an equivalent rental property. So that's out too as a sensible option for most people.

The best route, therefore, is to short property companies and house builders via a downbet on their share price. Bid-to-offer spreads on the bigger listed firms are reasonable, and the underlying asset a share is pretty liquid. As ever with short bets, make sure you use a stop loss to limit the damage from an unexpected share price spike.