The property swaps market
WEST BROMWICH BUILDING Society did very well out of the UK house price boom. But not just from supplying mortgages. The company also had a nice little earner in supplying retail investors with synthetic exposure to the residential property market through capital-guaranteed structured notes. The emergence of a derivatives market on property over the past few years, led by the dealing desks of investment banks, meant that West Bromwich could buy exposure to house prices via swap agreements with banks before selling it on in note format to end investors. Recent house price upheavals, however, have had a nasty effect on the market.
"We don’t plan to look at either commercial or residential indices for some time," says Andy Heseltine, West Bromwich’s savings and investment product manager. The building society was still marketing property price-linked notes at the start of the year. Specifically, it was selling...
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