For sellers

Bulgarian Mortgages, who is actually lending? The true market behind the brokers

15 February 09

Whilst the Bulgarian property market continues to prove largely resilient to the negative forces of the current economic downturn, the foreign banks on its soils are not fairing so well. The rapid decline of available mortgage products is now clearly evident, for foreigner buyers who didn’t pay cash this will prove to be the greatest catalyst for foreign owned repossessions in Bulgaria in 2009.

The offering of Bulgarian mortgages in the UK is unregulated, the protection of the Financial Service Authority does not apply. Anyone with a contract to represent a Bulgarian bank’s products can do so without training or fear of the ramifications. As such, pick your broker carefully; are they asking you for fees before they tell you which products are available or which banks those products come from? If so, best to walk away.

There are some very clear facts in the market at the moment; as of 13th February 2009 Allianz Bank, DSK, Raiffeisen Bank and KCB Bank have all stopped lending to foreigners. The key active lenders are now; United Bulgarian Bank, Piraeus Bank, MKB Union Bank and Alpha Bank. From those that are active we know that very few applications are being accepted, even those that are above and beyond the criteria required, in one case a bank employee told us that currently 90% of applicants are rejected. Greek owned Piraeus Bank, popular with Brits due to their London office, launched their latest mortgage on 9th January 2009. It does not allow lending for studios, thus ruling out the majority of buyers, and will not approve any loan for less than 50,000 Euros. A seemingly acceptable policy change in order to reduce risk, however the reality is that since its launch we are yet to see a single applicant be granted more than 50,000 Euros from Piraeus.

Contrary to popular belief, all mortgages are calculated on the figures produced by an independent evaluator; what the buyer agreed to pay, what the developer claimed it was worth or what an estate agent could sell it for are all totally irrelevant. If we take the ski resort of Bansko for example; it is very rare for any evaluation to come back at more than 1000 Euros / sqm, typically it will be 800 Euros / sqm. Naturally the banks will assess lending based on a consideration of the value, the client in question and what it is prepared to risk on any given property. However, in this current climate the banks have set their glass ceilings and almost regardless of the property value, quality or location they won’t lend above it.

Applicants fortunate enough to get approved for a mortgage are confronted with the news of exactly what percentage of their valuation they will be allowed to borrow. Unfortunately, in this current climate it is never the percentage described in the product and those advertising 70-80% LTV (Loan to Value) are actually only lending 50-55% LTV in reality.

.Of the active lenders in the market the advertised amounts available are as follows: .

MKB Union Bank: 35% of valuation only
Piraeus Bank: 70% of valuation, minimum lend 50,000+ Eur LTV, not for studios,
Alpha Bank: 80% of the valuation, vast majority of applicants are declined.
United Bulgarian Bank: 70% of the valuation, expect 50-55% only

With regards to interest rates, currently Bulgarian savings accounts achieve an average of 8.5% interest, as such it is very unlikely that any bank would lend money at rates below this. Brokers with products at 4.9% are simply practising false advertising, others showing 6% interest rates are for the first year only and always average out to be more, normally above 9% over the life of the loan .

Looking to the future, we expect a further withdrawal of mortgage products from the marketplace over the coming 6 months, as such our advice is to apply via worthy brokers as soon as possible. Make sure they are actually working with the active lenders and not just in business to take your application fee and then say ‘sorry, the bank said no’. New Estate Finance is part of the New Estate Group our products can be viewed under our mortgage section.

.As a synopsis, if you or your clients are looking for a mortgage;.

• Work on only achieving a lending of 400-500 Euros /sqm at the maximum.
• Don’t expect the application process to cost less than 800 Euros in total.
• Don’t work with a broker who will charge you the full amount all over again if your first application fails.
• Don’t expect to achieve more than 55% of the independent valuation of your property.
• Do expect the valuation to be less than you paid.
• Do expect the application process to take 2-3 months
• Remember that it is possible to begin the application process when you only have Act 15
• Remember that is it impossible to get a mortgage approved and paid to the developer before Act 16 is granted.

Contact the author, Christophe Gater, at New Estate Finance in London on 0207 9934197 with any questions you might have.