Q2 2024 Portfolio Update | London House Exchange

Below you will find our Q2 2024 performance announcement. This includes an LHX update, updated financial information on all properties, individual unit details, property disposals, development loans, dividends and other important information for investors. 

To ensure that all clients have the opportunity to consider this announcement, the Exchange will be suspended as usual, for 3 working days, re-opening at 10am on Monday 5 August 2024.

Important upcoming dates 

Today’s announcements

1. LHX update

2. Portfolio performance

3. Dividend distributions

4. LHX Mortgage Bonds

5. May shareholder votes

6. Property development loans

7. Properties with fire safety issues 

8. Upcoming quarterly announcements 

1. LHX update

This is the 10th year of London House Exchange (formally Property Partner) and so we would like to take this opportunity to thank all our investors for their support over the years. 

We have faced a number of challenges, including Covid, fire safety issues in the wake of the Grenfell Tower disaster, the shift in demand away from town and city centre flats, changes in regulation like ground rent variation and, most recently, the significant rise in the cost of borrowing and slowdown in the housing market.

We have not launched new investments on the platform for some time, partly due to the uncertainty created by the aforementioned challenges, but also because we needed to focus on our current portfolio. Our actions to date have been critical to ensuring stability, and the entire team has been part of this endeavour; from creating Mortgage Bonds to remove the pressures of monthly interest liabilities and protect cash flow, to the complex task and legal wrangling of resolving fire safety issues and the day-to-day tech, compliance, customer service operation that ensures the smooth running of our highly-regulated exchange. 

Despite this, we understand and appreciate investors’ frustrations, and remain committed to achieving the best possible outcomes and ensuring the longevity of the platform. As such, we are currently working hard to bring new opportunities to the platform, both debt investments in the form of high-yielding secured bonds and new equity opportunities.

We understand from investors that they want a certainty of income, something which is harder to produce with individual residential assets in the current market and, as such, we are looking at both debt products and opportunities in the commercial sector that can produce higher yields and benefit from long-term lease structures. Mortgage Bonds have proven to be highly popular with investors, due to the high levels of return coupled with security, and we have identified potential new opportunities with third parties in the bridging and development loan space, providing investors with the opportunity to earn up to 12% p.a. via low-LTV, secured bonds, which we look forward to presenting on the platform in Q3/4 of this year. 

Our platform and technology remains unique and continues to evolve, and we are working to harness this in other ways. Our parent company, Better, is highly supportive of our endeavours and remains committed to LHX, in line with our shared vision to make property more accessible to investors and homeowners alike. 

As ever we value investors’ feedback, so please do not hesitate to get in touch with us via support@londonhouseexchange.com if you have any comments or questions. We will also be sending out an investor survey in the coming days, looking at investors’ experience of the platform, new products and ways we can improve, and incorporating this feedback into future developments. 

2. Portfolio performance 

Today (31 July 2024) we have published updated financial information for every property, including net income, mortgage details and the net cash position. You can find this information at the top of each property’s respective investment page, in the ‘Financials’ section. 

The ‘Individual Unit Details’ section, a tab within the ‘Financials’ section on each property’s investment page that provides detailed information on a unit-by-unit basis, has also been updated to reflect the latest status of every unit and contracted rent for let units. This tab is updated monthly and allows you to track sales progress for all properties voted for sale as part of their 5-year anniversary process. 

All information is updated to 30 June 2024.

Market overview

With inflation, as measured by the Consumer Prices Index (CPI), down to 2.0% in the 12 months to June 2024, the same rate as the 12 months to May 2024 (ONS) there is a more positive outlook for potential reductions to the base rate. As a consequence, the market is pricing in small reductions and the first sub-4% mortgages are back on the market, with the market-leading 5-year product now at 3.99%. 

The increasing certainty of falling rates and increased stability, or perception thereof, is potentially having an impact on transaction numbers, with data from HMRC showing the fifth consecutive month-on-month increase, and the number of non-seasonally adjusted residential transactions in May 2024, was 17% higher than in May 2023 (HMRC). 

We are continuing to see a divide in terms of house price increases and demand, both geographically and in terms of property types. Recent HPI data from the Land Registry, shows that the North East and Yorkshire and the Humber are seeing the highest annual growth with prices up 3.7% and 3.9% respectively in the 12 months to May 2024 and London seeing the lowest annual growth of 0.2%. However, the data points to a shift, with monthly growth significantly lower in the regions, with an average of 1.1% and London seeing increases of 3.9% between April and May of this year. While this suggests a return to the status quo, following Covid, as more workers return to increased days in the office, one trend that does not seem to be changing is that of the demand for different property types. The prices for flats and maisonettes in London have decreased by 2.2% in the 12 months to May 2024, and by 1.5% across England. Detached and semi-detached properties continue to be the property types driving house price growth, with increases of 3.6% and 3.8% respectively in the 12 months to May 2024, as buyers are potentially still opting for increased space over location. 

While demand for rental property remains strong, with average UK private rents up by 8.6% in the 12 months to June 2024 (ONS), indicative data from Zoopla suggests we may have reached peak rental inflation, with rental inflation at its lowest for 2 and a half years as affordability constraints on renters finally begin to exert downwards pressure on prices (Zoopla). 

This will likely exacerbate the significant decline for demand in the buy-to-let mortgage market; data from UK Finance shows that the sector has recently shrunk for the first time since 1996, with the number of new UK BTL mortgages halving in the last year. However, with fewer landlords entering the market and a growing number leaving, due to myriad factors such as tax changes, higher mortgage costs, and rising cost of maintenance, to name but a few we are not likely to see any steep declines in cost of rent and rather a gradual cooling. 

Residential portfolio unit status

The table below gives a summary of unit status by category across the residential portfolio at 30 June 2024. The changes exhibited over time continue to highlight the focus on selling residential units, as we seek to repay mortgages and fulfil shareholder mandates to sell properties following their 5-year anniversary votes.  

Rental performance

We have been proactively carrying out rent reviews across the portfolio, leading to strong rental performance over the 12 months leading to each of the last quarterly reviews, with rents up 8.3% in Q1 2024, 9.2% in Q4 2023, 8.6% in Q3 2023 and 9.3% in Q2 2023. 

Across 203 tenanted residential units, contracted rent grew by 3.2% in the 12 months to the end of June 2024. While we are not undertaking as many rent reviews as usual as we vacate units to sell, we are continuing to serve Section 13 notices (notice of rent increases) where possible – 50 of which were recently served and will have a positive impact on Q3 2024 overall rental performance. 

Average UK private rents increased by 8.6% in the 12 months to June 2024, down from 8.7% in the 12 months to May 2024 (ONS). While this is not a significant decrease, recent Zoopla data shows the UK rental inflation is at its lowest for 2 and a half years. This is due to demand slowing and the significant increases to date placing affordability constraints on renters meaning rents cannot rise much higher – pointing to a continued slowdown in rental inflation in 2024 (Zoopla). 

Residential Unit sales

There were 22 residential units sales completed in Q2 2024, amounting to £3.9m in property value. Across these completed unit sales, sales prices were on average 4.9% below their vacant possession value (VPV) and 0.7% below their purchase price. Of the residential units sold in this quarter, 44% were London flats, which sold on average 13.1% below purchase price, with the remaining 56% being regional properties, which sold for 11.7% above purchase price. 

While house prices continue to increase on average, this is primarily driven by price growth in houses, with detached and semi-detached properties seeing the biggest increases – 3.6% and 3.8% respectively in the 12 months to May 2024, whereas flats/maisonettes have decreased by 1.5% over the same period across England, with a 2.2% fall in London (UK HPI, Land Registry). 

We believe, barring any shocks, unit sales will accelerate across the next two quarters of 2024, due to the more positive outlook for interest rates and falling mortgage rates and high rents having a potential impact on people’s decision to purchase. 

Clients can see the performance of agreed and completed sales in the Individual Unit Details of each property and on our Selling Record.

Mortgage debt

The average interest rate across our mortgaged portfolio stands at 8.0%, which is unaffordable for the majority of residential properties. The cost of servicing mortgage debt erodes rental income and is the primary reason for dividend suspension across the portfolio. 

We are continuing to pay down mortgage debt wherever possible, predominantly through unit sales, and £2.1 million of mortgage finance was repaid across our residential portfolio during the last quarter. The total portfolio mortgage loan-to-value (LTV) reduced to 42.0% at 30 June 2024, from 44.4% at 31 March 2024.

3. Dividend distributions

The following property will have its dividend reduced from 1 August 2024.

The average net dividend yield on the 5 properties distributing dividends is 3.44%.

4. LHX Mortgage Bonds

Following recent unit sales in Mortgage Bond properties during Q2 2024, there has been the partial and full repayment of capital and interest in two bonds: 

• 88% of the 7 & 9 Anchor Point Mortgage Bond has been repaid with interest. Bondholders achieved a total return of 9.91% on the amount repaid, equivalent to an interest rate of 9.18% p.a. accounting for increases in the Base Rate over the bond’s term. The outstanding 12% of the mortgage bond remains in place (secured with first legal charge), with bond investors continuing to accrue interest at a current rate of 9.25% p.a.
• The remaining 44% of the Keogh House Mortgage Bond has been repaid in full with interest. Bondholders achieved a total return of 9.25% on the amount repaid, equivalent to an average interest rate of 8.21% p.a, accounting for increases in the Base Rate over the bond’s term.

The Mortgage Bonds and their rates are presented below, but please note the next Bank of England base rate decision is coming up tomorrow on 1 August and any change to the base rate will be immediately passed directly on to bondholders, changing the per annum interest rate for each of our Mortgage Bonds:

* Indicates partial repayment of capital with interest following unit sales. 

View Mortgage Bonds page

5. July/August shareholder votes

Duffield Road, Derby 

The blocklisting phase of the 5-year anniversary process concluded 29 July and was not fully funded by LHX investors. As a result, the property will be sold and net proceeds will be returned to all shareholders in the property.

Unit sale votes

Shareholder votes will commence Thursday 1 August for the potential sales of units in the following properties:

Your Dashboard, sets out those properties in which you are a shareholder with ongoing votes. 

6. Property development loans

You can find the latest updates on the outstanding loans on their respective investment pages here.

7. Properties with fire safety issues 

The UK-wide fire safety scandal continues. We are working to help resolve outstanding issues where possible and the government is continuing to address the issues across the UK, but the situation remains far from resolved across our 7 impacted properties. Our power to progress the situation is limited in our capacity as a leasehold owner of a small number of flats within a larger block. However, where a fire-safety issue has recently emerged at Terence House, Newcastle upon Tyne, as the freeholder we are able to proceed to undertake the necessary works. In situations where we are not freeholder, we continue to press to resolve the issues through all the channels available to us and The Heights, West Bromwich is currently having the requisite remedial work undertaken which is set to complete in August – once complete, a new valuation will take place. 

For further details on this and 7 properties that are impacted, read the latest update on each affected property’s Latest Update section.

8. Upcoming quarterly announcements

31 October 2024 – market closed from 10 am that day until 10 am, 5 November 2024

31 January 2025 – market closed from 10 am that day until 10 am, 5 February 2025

If you have questions about these announcements, please email us at support@londonhouseexchange.com

Best wishes, 

The LHX team