Q4 2023 Portfolio Update

Below you will find our Q4 2023 performance announcement. This includes; updated financial information on all properties, updated 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 February 2024.

Important upcoming dates 

1 February5-year anniversary processes: voting commences
5 FebruaryDividends for the month of January paid
Unit schedule updated for 31 January 2024
LHX Exchange reopens for trading (10am)
15 February 5-year anniversary processes: votes end, block-listings commence (11.00am)
29 February 5-year anniversary processes: block-listings close (11.00am)February activity update published

Today’s announcements

1. Portfolio performance

2. Dividend distributions

3. LHX Mortgage Bonds

4. February 5-year Anniversary Properties

5. Property development loans

6. Properties with fire safety issues 

7. Upcoming quarterly announcements

1. Portfolio performance

Today (31 January 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 which 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 31 December 2023. 

Market overview

Since our last quarterly report, the outlook for inflation and interest rates has changed significantly – inflation has now fallen to 4.0% (CPI) in the 12 months to December 2023 down from 6.7% in September (ONS) and markets are now pricing in cuts to interest rates in 2024. 

However, the broader economy and housing market has already been significantly impacted by the existing high rates of interest, with many commentators suggesting the UK is already in technical recession (EY) and house prices continue to be impacted, with further falls predicted in 2024. The OBR has predicted that house prices will fall by 4.7% in 2024, and recent ONS data shows that UK house prices fell at the fastest rate in more than a decade in November, with a particularly sharp decline in London, with a 6% contraction in the 12 months to November. The potential rate reductions on the horizon could be feeding into more responsive house price indexes with Halifax showing prices rose by 1.1% in December suggestive of increased demand, however they too are predicting a fall between 2 and 4% in 2024, in line with other indices. 

Housing affordability continues to result in much reduced transaction numbers, with data from HMRC showing that the number of UK residential transactions in November 2023 was 22% lower than November 2022. HMRC provisional data is showing that 2023/24 transaction numbers in the financial year to date will be the lowest in the last 10 years, bar 2020/21 when the country was in a protracted period of lockdown.

The rental market has performed well, and demand for rental properties has been 51% above the 5-year average for most of 2023 (Zoopla), driven by both a shortage of rental properties as landlords exit the market and potential buyers stay in rented accommodation for longer.  This has resulted in strong rental growth, with the average growth across UK private rented residential property up 6.2% in the 12 months to the end of December 2023 (ONS Index of Private Housing Rental Prices). 

5-year anniversary trading

On 1 December 2023 we enabled trading on properties that were being sold off platform following 5-year anniversary shareholder votes. We will continue to sell these properties (on a unit-by-unit basis for residential properties (where applicable) to maximise value and block basis for student/commercial properties) in line with shareholders voting intention. However, following investor feedback, with investors voicing a desire to have the option to liquidate their holdings in these properties prior to the sales process completing, we acted to provide an alternative exit option.

We received a significant amount of positive feedback from investors, both on account of enabling trading itself and on the enhanced Individual Unit Detail disclosure which provided the necessary information to trade – in excess of £500k has been traded since 5-year trading was enabled. 

Residential portfolio unit status

The table below gives a summary of unit status by category across the residential portfolio at 31 December 2023. 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.  

Residential unit status31 March 2023 30 June 202330 September 202331 December 2023
To let (vacant)10476
For sale (vacant)52547949
Under offer (vacant)44605377
Total current units442426406384

Rental performance

We have been proactively carrying out rent reviews across the portfolio, leading to increased rental performance. Across 252 tenanted residential units, contracted rent grew by 9.2% in the 12 months to the end of December 2023. By comparison, average rental growth across UK private rented residential property was 6.2% over the same period (ONS Index of Private Housing Rental Prices). 

Unit sales

There were 22 residential units sales completed in Q4 2023, amounting to £4.33m in property value. Across these completed unit sales, sales prices were on average 0.2% above their vacant possession value (VPV) and 9.5% above their purchase price. 

Unit sales have accelerated this last quarter and the average sale price achieved has moved from just below VPV last quarter to just above this quarter – potentially on account of the more positive outlook for interest rates in 2024. However, it remains the case that, as we reported in Q2 and Q3 2023, we are continuing to experience agreed sales falling through, primarily due to mortgage affordability and, in line with market trends, we are seeing longer than average sales periods.

Following the sale of the last remaining unit, Finch Heights, Hastings has been sold off platform – the Company was placed into members’ voluntary (solvent) liquidation on 17 January 2024 and the cash distribution has been paid to shareholders’ London House Exchange account – providing investors with a total return (dividend and net capital) of 38.4%. 

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

As it stands, the average interest rate across our mortgaged portfolio remains at 8.2%, 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 £2.9 million of mortgage finance was repaid during the last quarter. The total portfolio mortgage loan-to-value (LTV) reduced to 44.5% at 31 December 2023, from 47.6% at 30 September 2023.

2. Dividend distributions

There are no changes to dividend distributions – 8 properties are distributing dividends and the rate remains unchanged. 

The average net dividend yield on the 8 properties distributing dividends is 4.25%.

3. LHX Mortgage Bonds

Following recent unit sales in Mortgage Bond properties during Q4, there has been partial repayment of capital with interest in one bond and full repayment of capital and interest in another:

  • The Garden Court Mortgage Bond has been repaid in full with interest. Bondholders achieved an interest rate of 8.78% p.a. accounting for increases in the Base Rate over the bond’s term. 
  • The Dutch Quarter II Mortgage Bond has been partially repaid with pro rata interest, equivalent to an interest rate of 9.05% p.a. 62% of the mortgage bond remains in place, secured with first legal charge on the remaining unit with bond investors continuing to accrue interest at a current rate of 9.25% p.a.

The Mortgage Bonds and their rates are presented below, but please note the next Bank of England base rate decision is coming up on 1 February 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:

PropertyCurrent p.a. return 
Dutch Quarter II, Colchester9.25%
Keogh House, Swindon8.25%
Flats 7 & 9 Anchor Point, Surrey Quays9.25%
Flat 25 Anchor Point, Surrey Quays*9.25%
Garden Court, West DraytonFully repaid, with interest
Jubilee Mansions, Barons CourtFully repaid, with interest
* Indicates partial repayment of capital with interest following unit sales. 

View Mortgage Bonds page

4. February 5-year Anniversary Properties

4 properties are undergoing their 5-year anniversary process in February, with voting commencing on Thursday 1 February: 

5. Property development loans

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

6. Properties with fire safety issues 

The UK-wide fire safety scandal affecting high rise blocks 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 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, in all outstanding cases on our platform. 

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

7. Upcoming quarterly announcements

30 April 2024 – market closed from 10 am that day until 10am, 3 May 2024

31 July 2024 – market closed from 10 am that day until 10am, 5 August 2024

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

Best wishes, 

The LHX team