L&G Affordable Homes falls to £7.5m loss

Legal & General’s growing affordable housing subsidiary fell to a £7.5m loss in 2022 after it had to revalue its homes portfolio in the wake of the mini budget crisis.

The ’for profit’ affordable housing provider, which said it completed its 3,000^th home in the year, recorded the pre-tax loss for the 2022 calendar year on revenue of £19m, up more than 50% from 2021.

L&G Affordable Homes Ltd (LGAH) said in notes to its accounts that a revaluation of its properties, carried out in the wake of last autumn’s mini budget turmoil and the decision by the government to limit rent increases for affordable housing, made an £11.8m dent in its income statement. In addition, it said the cost of financing the business rose from £4.6m in 2021 to £10.8m last year as in interest rates rose.

The pre-tax loss of £7.5m compared to a profit of £7.4m in 2021. The firm’s accounts statement said it was “largely driven by higher debt servicing costs and revaluation losses on its investment property portfolio”.

LGAH has plans to build 10,000 homes for affordable rent or shared ownership by 2027

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LGAH’s chair, Ian Graham, said in his introduction to the accounts that the firm was “on track” with its strategy of growth, with 1,363 homes added to the portfolio in 2022, making LGAH a top-ten housing association developer.

However, he conceded that the year saw “significant market volatility” in its latter months, characterised by rapid interest rate rises and the capping of affordable housing rents by the government. He said: “The combined effect of there led to a fall in the value of our property portfolio at the end of the year and increased costs on our inflation linked debt.”

LGAH continued its strategy of transferring some of its homes to a sister firm, Legal & General Affordable Homes (AR) LLP once completed, with 527 moved across in the year, leaving LGAH Ltd with 2,092 homes under its own management, despite having now built more than 3,000.

The firm claims a total of 6,200 homes in its development pipeline.

The accounts also showed that the business missed a number of its internal performance targets, with just seven out of 13 metrics hit. Despite building more homes than the 1,100 targeted, LGAH said it missed its target for investment in properties as a proportion of the total value of its portfolio. It said: “Reinvestment in 2022 was behind target due to the business having made a strategic decision to slow origination of new homes in response to the challenging economic environment it faced in the latter part of the year”

It added investment levels were also impacted by fewer homes handing over because of delays in schemes reaching practical completion.

Ben Denton, chief executive, said: “It has been a strong year for Legal & General Affordable Homes – we built a record number of homes, invested significantly in improved services for residents, and received a G1:V1 grading from the Regulator.

“Legal & General takes a long term investment approach to housing. Legal & General Affordable Homes is made up of number of individual commercial entities which, as a whole, made an operating surplus of £37m last year – leaving us well placed to continue growing and delivering.

“Just like the wider housing sector, we felt the impact of recent national financial shocks, but we weathered the storm and demonstrated our resilience. As we look ahead, we are on track to build affordable homes, continuing our commitment to quality resident services and creating a greener, more sustainable business.”