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Mortgages for Bulgarian Property: Update

We are now a good / bad year into the global credit crunch and more recently things have picked up pace, both with regards to government rescue plans as well as the fall out upon numerous economies with the forecast now being for a global recession. As the name suggests this will affect all countries, although some will be affected more than others.

The Bulgarian government seem confident that they will escape relatively unscathed, I feel this is a rather confident prediction, however, they should fare better than many other more developed and sophisticated economies.

Recently I attended a meeting of the Association of Bulgarian Credit Brokers, it seems that they were all agreeing that significant changes have occurred in Bulgaria over the past few months both for foreigners and domestic purchasers, particularly in relation to mortgages for Bulgarian property. They feel that prices are stabilising and in some areas and with some property types reducing, banks are changing parameters and criteria on a regular basis (with much detriment to clients who have applications in progress with these banks) and that interest rates have risen sharply (between 1% and 2%). These thoughts are certainly something that Bulgarian Home Loans would echo.

 

Banks are happy to lend

In general most banks are still happy to lend to foreigners but several of the banks are restricting lending in some over-developed tourist areas as well as reducing the market valuations of properties to levels far removed from what many foreigners have paid.

This does not affect everyone, just people who purchase in highly priced poorly located developments.

The banks are also reacting quite quickly and seem to be changing the loan parameters without warning and without thinking about how this affects clients with existing non completed loan applications. One of our banks has stopped signing mortgage contracts (even though they have been signed by the clients, they will not tell us why but we can only assume they are unsure about what to do). Only a single bank, Raiffeisen, has pulled out of the market for lending to non resident foreigners completely.

Banks are reacting in similar ways all over the world not just with regard to Bulgaria. However, I believe that the attitude as to how this affects clients and the long term market is maybe unique to Bulgarian banks.

 

You have to be a better client

It used to be that most UK clients remortgaged their UK property and released equity to buy in Bulgaria. This is still a possible solution, it is just that you now need to have more equity in your property and be a better client. This is because UK property prices have fallen, product parameters have reduced (90% plus mortgage are now hard to come by) and banks are cautious as to who they lend to. An independent mortgage broker could quickly tell clients what options are available to them.

As an example of current mortgages available in UK and Bulgaria I shall select two commonly used lenders and products:


Bulgaria
Piraeus Bank, 7.86%, 75% of the value of the property, full income proof needed

UK
Halifax, 5.99%, 90% of the value of the property, full income proof needed

These are not best rates but they are very indicative and more expensive than they would have been 12 months ago.

Mortgages in Bulgaria can take many months to complete but this is not all down to the bank. The mortgage process really starts when we first speak to clients and get some initial documents from them. However, in the case of off plan property, we cannot actually submit the final application to the bank until the property is at a particular stage (and they are often delayed) and we have received a suite of documents from the developer and client. Some lenders are then quite efficient whilst others are a law unto themselves and take months to do anything. In general we recommend 12 weeks from when we have received all necessary documents from the developer and clients, although we have done mortgages in 4 weeks.

In the UK it has slowed up a little but a re-mortgage could be done in under 4 weeks with the fastest being about 2 weeks.

Many Bulgarian property buyers purchased properties in cash and may be thinking about releasing equity against these properties in order to pay off debts in their home country or renovate / improve their Bulgarian property. Both of these things can be accommodated, there are no hard and fast rules as the world of Bulgarian mortgages is anything but definitive.

We feel that things will not really improve over the next 6 months until the global markets get themselves back into order. We are still confident that we can get the vast majority of clients a mortgage, it is really just a matter of how much they will be lent and what rate they are willing pay.


Chris Downham
Bulgarian Home Loans

www.bulgarianhomeloans.com