Only a few years ago, mortgages were a novel idea in Bulgaria and interest rates were prohibitively high. But since 2005, the big Bulgarian banks have started to realise the potential for providing loans to foreigners buying property in Bulgaria and not only to reduce lending rates but also to introduce new types of loan.
Nevertheless, the process of obtaining a local mortgage can be slow (delays are common) and Bulgarian lenders usually require you to have a ‘clean’ credit record and a substantial (by Bulgarian standards) minimum income. Moreover, not all Bulgarian lenders offer mortgages to Bulgarian limited companies.
The main Bulgarian banks offering home loans to foreigners are Bulbank, DSK Bank, First Investment Bank, Invest Bank (I-Bank) and United Bulgarian Bank (UBB). The Greek bank Piraeus, which has 13 branches in Bulgaria, also offers ‘Bulgarian’ mortgages. Interest rates are usually around 6.5 to 7.5 per cent and can be fixed or variable.
If you apply directly to a bank for a loan, keep an eye on the various costs such as application fees, completion fees and legal fees. These can be expensive (up to €1,200 for legal fees and around €200 to €300 for application fees) and won’t be refunded if your loan application is unsuccessful.
The maximum mortgage term in Bulgaria is 20 years, and Bulgarian banks won’t lend you the full amount of a property’s value. The average ‘loan to value’ ratio is 70 per cent for properties under €100,000, 75 per cent for properties over €100,000 and usually around 60 to 65 per cent for brand new properties (including off-plan purchases). This means that you must be able to pay a cash deposit of 30 to 40 per cent of the purchase price.
In the case of a brand new property, finance isn’t available until the property is complete and registered in your name (i.e. you’re the legal owner). You must therefore finance any deposit and stage payments using other resources.
Some of the established Bulgarian estate agents are now offering ‘buy-to-let’ mortgages arranged through Bulgarian banks to those who wish to invest in Bulgarian property. Keep in mind, however, that these mortgages carry a high element of risk: the mortgage must still be paid even if there’s no rental income!
As well as buying an existing or new property, Bulgarian mortgages can be used to finance improvements to a property.
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If you need to obtain a mortgage to buy a home in Bulgaria , you should shop around and compare interest rates, terms and fees (which can be very high) from a number of banks and financial institutions.
Bulgarian mortgages are paid in euros and there’s an element of risk in taking out a euro loan if you aren’t paid in euros. You will need to weight up these risks with an independent financial advisor before committing to a loan. One way of decreasing risk is by fixing the exchange rate in advance with a specialist foreign currency broker such as HiFX (www.hifx.co.uk ) or Travelex (www.travelex.com ). Using these services you can agree to make a payment at a future date at a rate agreed in advance.
Remortgaging
If you have spare equity in an existing property, it can be more cost-effective to remortgage (or take out a second mortgage) on that property than to take out a new mortgage for a second home. Depending on the equity in your existing property and the cost of the Bulgarian property, this may allow you to pay cash for a second home.
There may be several advantages to remortgaging, including the following:
- Remortgaging involves less paperwork and therefore lower legal fees.
- You may not require additional life insurance.
- All documentation will be in English.
- You can take advantage of any types of mortgage not available in Bulgaria (e.g. endowment or pension mortgage) if appropriate.
In the present Bulgarian property market, it’s generally thought to be preferable to release equity in your current home than to take out a separate mortgage on a Bulgarian property. The main reason is simplicity: you’re dealing with a bank which knows you and therefore most of the paperwork has already been done. It doesn’t always make the best financial sense, however, as you’re vulnerable to currency fluctuations between the euro and your home currency.
Foreign Mortgages
While some high street banks in the UK offer foreign mortgages, these tend to be only in well established property markets such as France, Spain and Portugal. Bulgaria is considered an emerging market and so only a few financial institutions will lend for property purchased in Bulgaria.
Banks that offer loans for foreigners to purchase property in Bulgaria include the Greek-based Piraeus Bank (www.piraeusbank.gr ), although these can be difficult and time-consuming to arrange.
Specialist companies such as Conti Financial Services (www.mortgagesoverseas.com ) offer mortgages for UK and Irish nationals secured on Bulgarian properties (and other nationals on a ‘case by case’ basis).
If you’re in the UK, make sure that any mortgage broker or financial adviser you use is accredited by the Financial Services Authority.
This article is an extract from Buying a Home in Bulgaria
from Survival Books.