Avoid this property investment product

The latest residential property product to be launched the Castle Trust House Price Savings Account (HouSA) comes with the backing of Sir Callum McCarthy, a former head of the Financial Services Authority (FSA). Even so, we won't be joining the queue to buy one.

Here's how it works. Castle Trust takes your money and invests most of it in partnership mortgages' taken out by what they call responsible homeowners'. With a partnership mortgage, Castle Trust matches the deposit put down by a homebuyer. This allows the mortgagee to get a more competitive loan rate (for example, if a mortgagee puts down 20% so will Castle Trust, which brings the mortgage required down to 60% of the value of the property).

In return for the boosted deposit, Castle Trust takes 40% of any appreciation in the value of the property, and shares in 20% of any loss.

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For HouSA investors, mortgagees are chosen so that the underlying property portfolio matches the one that underpins the Halifax house price index (HPI). The fund then offers returns linked to the performance of this index (on a minimum investment of £1,000 and a maximum of £1m). The exact return depends on how long you invest for and the plan chosen income or growth.

With the growth plan, over a three-year term you can expect to get 1.25 times the percentage rise in the HPI (so if house prices rise by 2%, you'd get 2.5%), 1.5 times over five years, and 1.7 times over the maximum term of ten years. Should house prices fall, you'll bear a loss respectively of 0.75, 0.5 or 0.3 times the drop. So the longer you invest, the bigger the upside and the smaller the downside.

With the income plan, investors get an annual income of 2%, 2.5% or 3% for a three, five and ten-year term respectively, paid in quarterly instalments. They will also receive 100% of any rise or fall in the HPI over the investment term.

So why wouldn't we buy in? Firstly, there's the fees Castle Trust charges a hefty initial 3%. Secondly, you have to tie your money up for a long period of time to get the biggest returns being locked into an illiquid investment is not ideal at the best of times, let alone now. Thirdly, it's hard to see who would want a HouSA.

Existing homeowners are already heavily exposed to property, and if you're a wannabe buyer, this is an inflexible and risky way to save for a deposit you need complete security, which means a bank account. Finally, the plan currently links your returns to a property market that is flat-to-falling (the latest Halifax survey revealed that prices fell 1.2% in the year to September). We don't see this changing for some time. In short, avoid.