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Foreign Property Mortgages - 8 things to consider

Staged Payments - The preliminary contract will contain details of when the staged payments are needed (particularly in relation to off-plan properties). It is important that these staged payments match how the potential lender can fund your purchase. For instance, some lenders (Piraeus Bank) only release the mortgage once Act 16 (Habitation Certificate) is obtained, yet the vendor may be insisting on full payment at Act 15 (Completion of Build).

Another possibility is that the preliminary contract may state that your staged payment is needed when your property reaches roof level. This is fairly common, yet the mortgage application cannot usually be submitted until it is accompanied by Act 14 (Roof Level Certification). This certificate may not be obtained by the developer until a few weeks after the property has actually physically reached roof level. Make sure your contractual payment is due a few weeks after the certificate is obtained rather than when the physical build stage at this level is achieved.

Price shown on Notary Deed - It is common place for agents to tell you that the notary deed price is often lower than the actual purchase price you are paying. Although this has been a common practice it is not legal. Under-declaring the actual price was usually used to reduce the initial tax burden on both parties. However, the tax reduction is insignificant and this practice also causes the buyer large tax bills when coming to resell the property. A vast majority of lenders will only release the mortgage as a percentage of the purchase price or the notary deed price - whichever is the lower!

As an example, if you were purchasing a foreign property for 100,000 euros and expecting a 70% mortgage of 70,000 euros, if the notary deed price is put down as only 50,000 eurs, then you will only end up with a mortgage of 70% of the 50,000 marked in the deeds, which is only 35,000 euros.

Valuation Shortfalls - Be prepared for the lender to value the property for less than the price you are paying. This does not reflect the actual market price of the property but more reflects the Bulgarian lenders attitude to risk and their thoughts as to what the price of the property would be if they had to sell it in a rush as a repossessed property. Chris Downham, Managing Director of Bulgarian Home Loans, reports that "in about 50% of cases we find that the banks reduce the value of the foreign property and hence the corresponding loan amount which leaves buyers with a shortfall that they need to pay by cash. We can help raise this in the UK via loans, etc., but we would suggest that clients do not commit all their available cash as a deposit, otherwise they may find themselves short of money at completion."