Bulgarian Government introduces new legislation to greatly reduce the cost of borrowing.

Voted in on the 22^nd April and applicable from the 22^nd July 2014, changes to Bulgaria’s Consumer Credit Act will prevent banks charging borrowers arrangement fees, early repayment fees, commissions or monthly credit management fees.

Simultaneously, the Bulgarian government has capped the APR rate of all loans, both short and long term, to 54%. No longer will ‘loan shark’ style lenders be able to lend for short periods at horrifically high rates. Not too much of an impact for the high street lenders facilitating property backed mortgages at 7-10%, but devastating for the smaller private licensed operators who have typically charged upwards of 1500%, a common source for buyers who place cash deposits to make up shortfalls.

Great news for borrowers seeking mortgage products to help them acquire property, but not such good news for vendors as every active buyer holds back from making offers until the end of July when the bank’s positions become clear.

Every financial institution offering loans will have to restructure their products. Sceptics fear the banks will simply rename and reclassify their product charges to bypass the new laws and ensure their returns remain the same. However, more likely is a greater level of transparency for the consumer as the true cost of borrowing will become initially clearer. Ultimately, the benchmark for loans remains the interest rate, which banks have historically minimised to attract and appeal whilst simultaneously racking up additional hidden costs, not all of which are fully understood by the general buying public.

If the banks fail to find avenues around the laws, it is most likely to see a rise in the advertised interest rates and the disappearance of hidden add-on costs. In either case, the impact for the property market is abundantly clear: property buyers using mortgages will be on hold until these laws apply from the end of July, after which many will be put off by the seemingly large jump in interest rates.