Q3 2024 Portfolio Update | London House Exchange

Below you will find our Q3 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 Tuesday 5 November 2024.

Important upcoming dates 

Today’s announcements

1. LHX update

2. Portfolio performance

3. Dividend distributions

4. LHX Mortgage Bonds

5. November shareholder votes

6. Members Voluntary Liquidations (MVLs)

7. Property development loans

8. Properties with fire safety issues 

9. Upcoming quarterly announcements 

1. LHX update

Following feedback we received from investors, we have made platform improvements including: a new template for unit sale votes going forward, providing greater context to the down valuation including a sales timeline, comparables and other important information including state of repair; and we have made property information easier to access from investors Dashboards through improvements to the navigation meaning that information investors want, including unit details, financial information and more, can be accessed simply by clicking on the property name in your portfolio. 

The property team have been particularly hard at work this quarter, selling 27 residential units in Q3 2024, amounting to £5.6m in property value. Given that this is usually a quieter time on account of the seasonal impact of the summer months, this is a significant volume of property sales. The team have also been critical in resolving the fire safety issues on two impacted properties in the portfolio over this last quarter – Terence House and The Heights – with major programmes of remedial works having been carried out. 

Lastly, we are excited about launching our new Mortgage Finance Income investment product in November – offering 10% p.a., over short terms of 6-12 months, secured against the property. The team have been working hard to develop this product, as we wanted to incorporate your feedback into a new product, create a strategic partnership with a company that was active in the mortgage finance/bridging space and offer a product that was less reliant on the vagaries of the market, with certainty of income. The offering will be available on the platform shortly and we will notify all clients via email – as with our Mortgage Bonds, we expect these to prove a popular addition to our investment offerings.

As ever we value your feedback, so please do not hesitate to get in touch with us via support@londonhouseexchange.com if you have any comments or questions. Thank you for your support and we hope you enjoy the run up to the festive period this quarter. The next portfolio update is in the New Year on 31 January 2025. 

2. Portfolio performance 

Today (31 October 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, will be updated 5 November 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 September 2024.

Market overview

The Budget this week was a significant event, marking the implementation of the government’s vision for the economy over the course of this parliament. In terms of the property market, the primary focus of the Budget was on building new homes with over £5bn allocated to support housebuilders, Affordable Homes Programme and develop sites across the UK. In particular, £3bn of support has been given to housebuilders and the Build-to-Rent sector in the form of housing guarantee schemes. Arguably, this and policies outlined below mark a clear shift of focus to building new housing stock, making development and build-to-rent a more attractive proposition than traditional buy-to-let models. 

The Stamp Duty (SDLT) increase on additional properties is likely to have the most immediate impact, with a surcharge on second homes and buy-to-let properties rising from 3% to 5% and coming into force today. This could further deter investment in rental properties, adding further supply side pressure, keeping rental inflation higher for longer. 

In combination with double council tax for second homeowners, this change could also lead to depressed prices in certain rural areas that saw huge demand during the Covid pandemic, with Zoopla reporting four times more homes coming to the market in areas with above average second home ownership, but with buyers deterred by the additional costs.

With SDLT thresholds reverting back to 2022 levels come April 2025, an increasing number of people will be paying SDLT again and particularly the reduction in First-Time Buyer Relief could drive sales during the intervening period with landlords looking to exit the market, especially with Capital Gains Tax remaining unchanged for residential property, contrary to earlier speculation. 

Over £1 billion investment to remove cladding deemed a fire risk from homes next year and this should hopefully have a positive impact accelerating remedial works across the country. 

Residential portfolio unit status

The table below gives a summary of unit status by category across the residential portfolio at 30 September 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 3.2% in Q2 2024, 8.3% in Q1 2024, 9.2% in Q4 2023, 8.6% in Q3 2023 and 9.3% in Q2 2023. 

Across 182 tenanted residential units, contracted rent grew by 2.1% in the 12 months to the end of September 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.

While rents remain high, recent data shows that rental inflation has slowed to its lowest level for 3 years and we can expect a continued decline in rental inflation in 2024 with 3-4% total rental growth across the year expected (Zoopla).

Residential Unit sales

There were 27 residential unit sales completed in Q3 2024, amounting to £5.6m in property value. Across these completed unit sales, sales prices were on average 6.4% below their vacant possession value (VPV) and 4% above their purchase price. Of the residential units sold in this quarter, 43% were London flats, which sold on average 1.7% below purchase price, with the remaining 57% being regional properties, which sold for 8.7% above purchase price. 

As we outlined in our last update, we expect the more positive outlook with regards to interest rates and certainty from the Budget to have a more positive impact on sales going forward. Indeed, mortgage approvals were at their highest level for 2 years in September, the fourth monthly increase in a row (Bank of England), and the number of UK residential transactions in August 2024 was 5% higher than August 2023 (HMRC), highlighting growing consumer confidence

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 8.1%, 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 £3.2 million of mortgage finance was repaid across our residential portfolio during the last quarter. The total portfolio mortgage loan-to-value (LTV) is currently 42%.

3. Dividend distributions

The following property will have its dividend reduced from 1 November 2024. Please see the investment case update for further information.