To help you understand the risks involved when investing on our platform, please read the following risk summary. It is important to read all available information, diversify your investments and understand that the money you invest is at risk.
Buying shares in properties
Property prices can go down as well as up as a result of a wide range of factors on both a macro and micro level. Different property types and different locations may be more or less susceptible to reduced or negative growth. Additional risks are potentially introduced because you lack control over management and disposal decisions in relation to the properties.
We encourage you to diversify your London House Exchange investments across multiple properties, as you would your own investment portfolio. This is to safeguard against excessive exposure to any one property that could incur issues, such as tenant vacancies or major works.
The value of your investment may decline
The value of your London House Exchange investment can go down as well as up and historic performance is not an indicator of future performance. A fall in the value of your investment may be due to a number of reasons, such as a fall in the underlying value of the property due to market conditions, structural or non-structural matters which need to be rectified that may need to be funded from future rental income, and measures to strengthen the financial position of certain properties, such as the issuance of further shares, which could lead to a dilution of your shareholding.
Cost of borrowing
Where mortgage interest is variable it will be subject to interest rate changes, as set by the Bank of England. Fixed mortgage rates are subject to these rate fluctuations at the point of remortgage. Mortgage rate rises are a risk to a property's net income and, therefore, dividends. Mortgage debt amplifies the impact of property price movements - returns outperform the market if prices rise, but underperform if they fall. Rising costs of borrowing could make refinancing or existing interest uneconomical, leading to a forced sale which poses a risk to the money you have invested.
Property is subject to significant legislation and legislative changes have the potential to impact both the income produced by and value of a property, impacting upon a property's dividends and are a risk to an investor's return.
Variable rental income
London House Exchange provides historical gross and net rental income information. These are not necessarily a reliable indicator of future income. It may be that lower rents are secured due to market conditions. Furthermore, rental income could cease completely for certain periods of tenant vacancy.
You can offer your investments for sale to other London House Exchange investors at any point on the Exchange, there may not be anyone willing to buy your investment at a price that you deem reasonable (or buy it at all). You would have the opportunity to exit at the five year anniversary of that property's listing on the London House Exchange platform (or such anniversary stated at the top of each property's investment page). The timing and price of exit will depend on completion of a transaction to sell the underlying property. This transaction is subject to market conditions and could take several months to complete.
London House Exchange reserves the right to dispose of the properties and return net proceeds to investors. This may result in investors receiving back substantially less than invested. In the event that London House Exchange is no longer able to trade, an independent professional firm will manage the sale of properties, which may result in losses.
How investments are treated for tax purposes is dependent on the individual circumstances of an investor and levels of taxation are subject to change. We are unable to advise on individual tax liabilities or status. We recommend that investors seek independent advice from a regulated tax advisor.
London House Exchange is regulated by the FCA, but is not regulated to give investment or financial advice. It is important that investors make fully informed decisions on investments and we recommend investors seek independent financial advice from a regulated advisor.
For a detailed explanation of how your investment is safeguarded, please click here. Please note that regardless of the fact there are safeguards in place, the money you invest remains at risk. In the case of the failure of the platform, an independent professional firm (PWC) will manage the sales of the properties which may result in losses.
Investing in Property Development Loans
Before investing in property development loans it’s important to understand the different categories of risk associated with this type of investment. As with all investments, particularly high-risk investments such as this, investors should diversify their exposure across a number of loans and limit exposure to any single loan. Click here to learn more.
The money you invest in property development loans is at risk. You could lose part or all of your invested funds.
Example: The developer becomes insolvent or fails to complete the scheme with the funding received and cannot secure additional finance.
Potential impact: The scheme is sold uncompleted to another developer for below its expected completion value (Gross Development Value, GDV). Investors could lose interest and capital.
Example: The developer is unable to sell the completed property(s) or refinance the scheme before the end of the loan term.
Potential impact: Investors may have to wait beyond the end of the expected investment term to receive their capital and interest.
Example: An economic shock leading to a substantial fall in property values, could result in the completed properties being worth less than the total outstanding value of debt secured against the project.
Potential impact: Proceeds of sale are insufficient to repay investors, and capital and interest is lost.
Lending partner risk
Example: Our lending partner becomes insolvent.
Potential impact: The lending partner ceases trading and is unable to fulfil its obligations to our investors, such as the repayment of capital and interest at the end of the loan term.
Senior lender risk
Example: The senior lender moves to enforce their security if the borrower falls into default at the end of the loan term.
Potential impact: The scheme is sold on an accelerated timetable for a low price, sufficient to repay the senior lender’s capital but not to cover our development loan.
Example: An investor would like to withdraw their capital from the investment before the end of the term.
Potential impact: The investor is not able to retrieve their capital until the loan is repaid, forcing them to wait longer than they would like.
Mortgage Bond specific key risks
This is a high-risk investment and as with any investment the money you invest is at risk. Returns, including interest payments, are not guaranteed and the bond issuance is subject to general risks of investment which you can read more about here.
Investment in LHX Mortgage Bonds is subject to specific key risks and investors should read and understand the following before proceeding with investment:
Future property value reduction - This would increase the loan-to-value ratio (LTV) and therefore increase the potential to lose the money you have invested.
Delayed repayment - Repayment is anticipated to be within 12 months from date of issue. Part repayments will take place following unit sales. Interest will be paid on partial capital repayments. However, repayment of the bond is predicated on unit sales. The speed at which these transactions take place is dependent upon the housing market and broader economic conditions. Multiple property sales may be required to repay the loan; the timing of these is not controllable and repayment may be delayed. A significant economic shock, for instance, could have a material impact on the housing market and thus on repayment. Bondholders will continue to earn interest until the loan is repaid whether partially or in full.
Liquidity - These bonds are illiquid and are not tradeable on any secondary market. This means that your investment will only be returned at the end of the term of the bond. Investors need to consider this lack of liquidity before deciding to invest.
Rental voids - Vacancies, reducing net rental income, could lead to future cash deficits which will need to be repaid and impact upon the financial position of the property.
Under subscription - Funds invested in Bonds that are undersubscribed, i.e where the fundraise does not completely repay the mortgage, are subject to greater risk of loss than those in which the mortgage has been repaid in full and where Bondholders’ investments are secured by way of First Legal Charge. For repayment, Bonds rank ahead of shares, but behind the mortgage - see Mortgage Lender Risk and Unsecured loan sections below.
Mortgage interest risk - Interest rates could increase or decrease significantly. Bond interest rates vary depending on the specific property. The existing mortgage rate is used as a reference to establish a fixed margin on top of the current BoE base rate. The Bond interest rate is variable and significant upward movement in interest rates could put pressure on the ability to pay interest to bondholders, whereas downward movement could impact upon overall returns.
Mortgage lender risk - The first charge mortgage lender will have the legal right to enforce the terms of their agreement, including the repossession of the property in the event of a default while the mortgage is outstanding. In the event that a mortgage is not repaid in full, the current lender could refuse an extension, meaning that an accelerated sale may be required leading to potential capital losses.
Unsecured loan - Until the mortgage is repaid, bonds are not legally secured against the property. Rather the mortgage lender retains the First Legal Charge over the property. Once the mortgage is repaid, the Bond is secured by way of First Legal Charge. While unsecured, the Bond would rank below the mortgage lender in the event of a forced sale or liquidation, placing risk on the investment. In a liquidation event, bondholders will receive funds before any return of capital to shareholders in the SPV.
Please read the terms and conditions before investing.