Interim update – 30 September 2022
On 31 October 2022, we will announce our next quarterly portfolio update, for the period to 30 September 2022. The resale market will be closed from 10am that day until 10am, 3 November 2022.
This interim update describes activity in September, but does not include property-specific information.
In little more than a week, the Bank of England has raised the base rate by 0.5 percentage points, the Government has issued a seismic fiscal statement, the value of Sterling has reached record lows, the cost of Government borrowing has risen dramatically, the IMF has criticised the Government’s measures, and the Bank of England has announced that it will buy Government bonds to help “restore orderly market conditions”.
At this stage, the Bank of England is scheduled to consider the base rate again on 3 November and a further rate increase is expected.
Rising mortgage costs and unit sales
The cost of mortgage interest across our portfolio is now over 5% p.a. and this rate appears likely to increase on 3 November. In addition, mortgage refinance opportunities are increasingly uneconomic or unavailable. We are continuing our programme of selling units and using these funds to repay mortgages. Where a property has a substantial cash surplus, we are using these excess funds to reduce the mortgage; where the mortgage has already been fully repaid, we will place excess funds in interest bearing term deposits.
In September, we completed the sale of 5 units and repaid £0.7m of mortgages. Our pipeline of further disposals is well-developed for the coming months.
The average total return from discretionary sales of units now stands at 28.3% — clients can see the full performance of all sales via our Selling Record.
Despite the special measures we are taking, mortgage costs are weighing heavily on the portfolio’s net rental income. There is a strong financial case to suspend many properties’ dividends. We will complete this analysis during October and announce the results, as usual for all dividends, in our next quarterly performance update on 31 October.
PPX share trading index
Information is the lifeblood of markets and from today we are providing additional valuation data across our portfolio. This additional information is available on our interactive PPX Share Trading Index Graph.
In addition to showing overall portfolio indexes, we now show separate Residential and Student indexes.
For the Residential indexes, we provide further detail, illustrating both Vacant Possession Value and Investment Value. For each Residential property, both these valuations are found in Allsops’ valuation reports on our site.
Historically, we have only shown the vast majority of our Residential valuations on the more conservative Investment Value; this remains a relevant reference, but Vacant Possession Value is the prevailing basis on which units across the portfolio are being sold, so this data has increasing relevance to clients.
- Residential property value, based on Vacant Possession Value (assessed by an independent RICS-approved surveyor), is 20.8% above purchase price
- Residential share value, based on Vacant Possession Value, is 17.6% higher than at acquisition; this is after purchase costs, deferred tax, mortgage finance and Property Partner fees
- By comparison, Student share value is 1% lower than at acquisition, which is a significant reason for the lower overall portfolio performance, offsetting the stronger Residential valuations
For discussion of what these indices reveal about our portfolio’s performance, please refer to our Guide to the PPX Share Trading Index.
Rob Weaver, our long-serving Chief Investment Officer, has departed with our thanks for the important role he has played in the acquisition and management of the property portfolio. We wish Rob well in his future endeavours.
We are delighted to announce that Rob has been replaced by Mark Weedon (previously Director of Business Development). Mark is already well known to many of our clients, having been a senior member of the team for the last 7 years. Mark’s combined knowledge of our property portfolio, mortgage portfolio, investment product and clients is second-to-none. There is, of course, no let-up in the demands on our property team – Mark is hiring to increase our capacity and we hope to make further announcements in the coming months.
Capital at risk. The value of your investment can go down as well as up. The Financial Services Compensation Scheme (FSCS) protects the cash held in your Property Partner account, however, the investments that you make through Property Partner are not protected by the FSCS in the event that you do not receive back the amount that you have invested.
The performance information (including any expression of opinion or forecast) reflects the most up-to-date data at the time of production; publication is made in good faith on the basis of publicly available information or on sources believed by Property Partner to be reliable.
Past performance and / or forecasts (if stated) are not a reliable indicator of future performance. Interest and capital returned may be lower than expected. Gross rent, dividends, and capital growth may be lower than estimated. Exiting your investments (on the resale market, via the 5-year anniversary process or according to targeted strategies) is subject to price and demand. Property Partner does not provide tax or investment advice and any general information is provided to help you make your own informed decisions. Customers are advised to obtain appropriate tax or investment advice where necessary. Financial promotion by London House Exchange Limited (No. 8820870); authorised and regulated by the Financial Conduct Authority (No. 613499). See Key Risks for further information.