BM Solutions News

Private rented sector thriving in Europe

17 October 2007

Diverse economies and lifestyles driving the market

New research from BM Solutions shows that diverse private rented sectors can be identified in all of the EU countries, driven by cultural and economic differences across the markets.

European tenants intend to buy later in life
Social differences are behind the diverse private rented sectors in European countries. In Germany, Portugal and Poland the average age of leaving the parental home is 23 years. However, in Germany, 43% of tenants have no intention to ever buy property and, of those that do, the average age they intend to purchase property is 45. This is compared with 34 in Poland and 36 in Portugal.

No substantial requirement for a specialist buy to let mortgage outside of the UK
UK landlords (79%) are clear that there is a requirement for a specialist mortgage product when purchasing a property to let. This is not the case in the three sample countries where the situation is reversed; 94% of German landlords state that a specialist mortgage is not required, with 92% of landlords in Poland and 80% of landlords in Portugal agreeing.

Low involvement from intermediaries
70% of UK landlords use an intermediary to organise their Buy-to-Let mortgage. This is the greatest level of intermediary involvement compared to 26% in Germany, 23% in Poland and a mere 6% of intermediary support in Portugal.

Majority of landlords investing for the future
The majority of landlords across the sample countries are investing for the future. German (70%) and UK (34%) landlords are taking a long term view and are mainly motivated to purchase rental properties in an effort to secure their future financial position. The greatest number of Polish investors however (40%) enter property investment seeking an additional source of income. Whilst most Portuguese landlords (30%) became involved in letting after two single people living apart moved in together.

More UK landlords use letting as their main source of income
17% of UK landlords let property as their main business and main source of income and a further 48% expect it to be in the future. None of the Polish or German landlords claimed it to be their main income at the moment. The vast majority of Germans (82%) do not expect it to ever be their main income source, although 68% of Poles believe that it will be in the future. In Portugal, just 2% say they are currently professional landlords, with 64% claiming that they will be eventually.

Germans see the gain in income, Poles see the gain in capital growth
German landlords clearly see rental income as more important with 66% of landlords rating income as most important to them compared to the 34% looking for capital growth. This view is reversed in Poland with 34% rating rental income against 66% looking for capital gains. The area of gain is less clear in Portugal with a 50:50 split of importance between rental income and capital growth. UK landlords mainly invest for the future (57%) capital growth.

Void periods grow substantially outside of the UK
UK landlords experienced an average 15 days void period in the last 12 months. This contrasts sharply with German landlords experiencing 88.9 days void in the last 12 months meaning missed revenue over 3 months. This is followed by a still substantial 62.6 day void in Poland and 56.6 days in Portugal.

KEY FINDINGS


• Lending by financial providers is most likely to be calculated using a combination of personal and rental income in Germany (52%), compared to 30% in Poland and 18% in Portugal. Personal income was the key factor in Poland (68%) and Portugal (68%). Rental income was the deciding factor in just 4% of cases in Germany and Portugal, and not at all in Poland.


• Landlords in all three sample countries rely on some element of mortgage funding to finance their investment properties; Germans 84%, Polish 68% and Portuguese 70%. Portuguese landlords however receive the highest level of support from family and friends (36%) in financing investments properties whilst 26% of Polish landlords and only 20% of German landlords receive support from relatives.


• Germans categorically opt for the stability of a fixed rate mortgage - with 93% of landlords selecting these products. 45% of UK landlords make the same choice, with 29% on either variable or tracker products. Nearly half (49%) of all Polish landlords are on a variable rate product, with 34% on a fixed rate. In Portugal, 54% are on tracker products, with just 12% fixing.


• German landlords experience the lowest profit after costs. 30% of German landlords state that they make a loss annually after covering costs, whilst 36% break even and 34% manage to make a profit after covering costs. This is at contrast with Poland where only 4% of landlords make a loss, 15% break even and the vast majority (81%) make a profit after covering annual costs.

In the UK the majority of landlords (75%) make an annual profit after costs whilst 18% break even and 5% experience a loss. In Portugal 42% make a profit, 38% break even and 20% make a loss.


• Germans and Poles cover voids with regular income whilst Portuguese landlords dip into savings. With much greater void periods German landlords (58%) need to supplement, on average, three months rent and Polish landlords (66%) over two months rent, the majority from both countries do so by drawing from their regular income. The majority of Portuguese landlords (62%) fund, on average, two months rent with their savings.


• The potential to reap rewards greater than those available elsewhere is often the key driver to a significant Buy-to-Let market. This is well represented in the UK where 69% of landlords believe letting property offers better returns than elsewhere. Research shows that German landlords do not believe property investment compares well to other investments available. Polish landlords are the most positive in terms of property investment returns outside of the UK.


• Encouragingly all landlords surveyed are clear that they view letting property as a long term commitment. For landlords in Germany, the average anticipated involvement is 18.7 years, with UK landlords at 17.5 years, Portuguese investors at 16.4 years and Polish involvement averaging 13.9 years.

Steve Sandiford, head of specialist lending strategy, BM Solutions, said, "BM Solutions' study is the first of its type on the European private rented sector. It is a major step forward for the market. This review will underpin the development of Buy-to-Let with solid numbers and strong market insight. Across Europe the norm is to buy well into your thirties. The UK is moving to a more continental European mindset with home ownership no longer the be all and end all.

Sandiford continues, "While the UK has a clearly defined concept of a 'Buy-to-Let' mortgage - it appears to be something that is unique. European mortgage lenders do not offer specifically underwritten products for landlords in the same way. Personal income is a defining factor in obtaining mortgages to fund rental properties within the EU sample countries that we selected.

"There are common themes throughout Europe. The different country approaches demonstrate the important of acting locally when supporting the needs of tenants and landlords, whilst thinking globally about best practice, which can improve the private rented sector in each country," concluded Sandiford.

ADDITIONAL INFORMATION

Landlords


• Landlords across the three sampled countries all point towards low LTVs as typical for their mortgages. LTVs in both Poland (38%) and Portugal (39%) are significantly lower than those in Germany (66%).


• The average portfolio size in the UK of five properties is higher than all other countries researched, reflecting the UK landlord stance of it being a main source of income. The average portfolio is 2.6 properties in Poland, 2.5 properties in Germany and 1.9 properties Portugal.


• Tax implications - German landlords report that regulation is strictly pro-tenant, governed by rent restrictions and a laborious and difficult eviction process for non paying tenants. This is a sentiment shared with Portuguese landlords, who feel restricted by rent constraints. In Poland, landlords feel restricted to a lesser extent; although some report that the tax laws are complicated.


• Across Germany, Poland and Portugal, landlords are all affected by rental legislation. Only 6% of Germans, 9% of Polish and 16% of Portuguese felt that legislation did not restrict their rental activities. Polish landlords find legislation fairly/very restrictive (58%) followed by 52% of Portuguese and 48% of Germans.


• Landlords in Germany believe renting is often more popular in their country as people want to retain personal flexibility; they have a fear of debt and/or a lack of capital. Polish landlords believe people in their country choose to rent due to a lack of funds; the fear of mortgage commitments and/or due to poor credit ratings. Portuguese landlords are very vocal regarding what they believe to be a poor financial situation and state that this, coupled with high unemployment and rising interest rates, is why people rent rather than buy.


• 77% of Polish landlords feel letting property has good short term prospects versus only 30% of German landlords. 79% of Polish landlords, 62% of Portuguese landlords and 62% of German landlords would all recommend letting property as a long term investment.


• Only 58% of German landlords agree that borrowing money is an acceptable form of financing their property.

Tenants

• 63% of German tenants do not believe that it is important that they own property in the future. 23% of Portuguese tenants do not want to own their own residence however 77% do believe it is important that they own their primary residence in the future. 22% of Polish tenants do not want to own their primary residence but 86% do believe it is important to do so in the future.

• 33% of tenants renting property in Portugal also own their own property elsewhere. 26% of tenants in Poland and 12% in Germany also own their own property whilst renting.

• German tenants believe that it is the norm for 75% of the German population to rent property rather than buy. In Portugal tenants feel it is normal that the majority of people buy property (40%) and in Poland, the norm is a 50:50 split between people owning and renting.

• In Germany, where it is normal that the majority of people rent, tenants claim people rent to retain flexibility and to stay out of debt. In Poland, tenants choose to rent due to a lack of funds and a fear of mortgages and the Portuguese place the reason on the current poor financial situation.

• Average renting households comprise of 2.1 people in Germany, 2.7 people in Poland and 2.5 people in Portugal. In Germany (75%), Poland (78%) and Portugal (81%), the vast majority of tenants rent flats. In Germany, rental properties have an average of 1.6 bedrooms; Poland has 1.8 bedrooms and the largest at 2.3 bedrooms in Portugal.

• German tenant responses show their average length of time in one rented property is 18.5 months, followed by Portugal tenants at 16.3 months. Polish tenants had the shortest duration in one property at 11.9 months on average.

• 86% of Polish tenants agree that the ideal is to own your own home - a belief that is backed by 68% of Germans and 75% of Portuguese tenants. However, 43% of Germans believe that the family should help financially with the purchase of a first home, along with 40% of Polish tenants and 25% of Portuguese tenants.

• The majority of tenants in Germany (63%), Poland (70%) and Portugal (54%) believe that renting is becoming increasingly popular in their country.

Sources

• BDRC European study
• BDRC Landlords Panel Survey
• BM Solutions consumer Buy-to-Let research

For further information contact:

Clare Mortimer
claremortimer@hbosplc.com
Senior Press Officer

Clare Mortimer
claremortimer@hbosplc.com
PR Manager