London Vs Sofia: how easy is it to buy your own home?

Sofia’s property prices have undeniably outperformed the rest of Bulgaria in recent years and are in most areas back to 2008 levels, in some very central parts they are now far beyond. Much as London has become an island of outrageous prices surrounded by the rest of the UK, which is merely very expensive, Sofia has begun to display many similar attributes. While there are few comparisons between the world’s 8^th most expensive city (UBS study 2018) and Sofia, the desire of its residents to own their homes is no different, understanding the economics that forge the trend is helping many owners decide if its time to sell or hold on.

How is Sofia’s market changing?

Sofia was previously a cash buyer’s market and typically those who qualified were almost entirely foreigners or wealthy Sofians, typically middle aged and older. The mortgages that did exist represented a minimal proportion of market transactions with as much as two thirds of residential property owned entirely debt free in 2010. However, the past 18 months have seen this aged concept fade into the annals of history as banks began lending to anyone employed with at least a 15% deposit.

Its tough to save a cash deposit in London, not so hard in Sofia where the nominal values are so much less. Stay out of restaurants for a couple of years, don’t buy that new car or take a holidays and its feasible for a young couple to put 10,000 Euros together. Rent is commonly 25% of average salary and 15% or less if sharing in Sofia, thus leaving considerably more disposal income than London’s average 49% rent expense (BBC 2017). This is before we consider The Bank of Mum, Dad, Uncles and Aunts, Cousins and Neighbours, which is an aged culture in Bulgarian society far more established and commonplace than in the UK.

In order to considering and represent the reality of accessibility of ownership, the table below provides a simple synopsis of average earnings according to 2018 government data and average borrowing capacity according to a selection of high street banks in both cities.

(For the purposes of simplification all figures are gross and exclude consideration of stamp duty / notary fees, LTV, existing personal debts or borrowings)

The stark reality is that an average employed Sofian is perfectly capable of borrowing enough to buy an average priced property, whereas in London the same level of employment will likely see that individual renting for two to three decades to have saved sufficiently to cover the shortfall between what the banks will lend them and the average property price.  

In the second table and at the extreme end we can make an example of young professional buyers in both markets; a London a city banker a few years out of university might well be playing at the top of their game and earning £100,000 / year, but it won’t afford them an average price property. By comparison, a software programmer in Sofia fresh out of university can quite easily earn 3-4x the average salary and borrow 7x their income, which is effectively nearly double the spending power. A recent study suggested that Sofia’s property market is today 10x more accessible for under 35 year olds than it was a decade ago, our experience certainly reflects these findings.

How is this impacting Sofia’s market?

In Sofia the cheapest mortgages ever seen are now available at 2.9%, it has catalysed the recovery and continues to fuel the rising trend. Banks will lend repayments in the amount of up to 60% of net disposable salary (after any loans, credit cards payments, essential living cost etc). With most premium central 1 bedroom properties averaging 90,000-130,000 Euros and outer location 1 bedroom apartments at 65-85,000 Euros, the reality is that first time buyers have access to more money than they need, hence property stock is liquid and prices are climbing.

At this level it starts not to make sense to rent anymore; a typical young professional couple can rent a typical 2 bedroom apartment for 500 Euros / month, or buy it and pay 400 Euros / month, as such hordes of tenants are becoming buyers.

Surely this is will end soon?

Sofia’s population continues to grow (10% growth since 2003) at the cost of the provisional areas, which is the major supply of new inbound tenants; they tend to relocate, settle, work in the tech sector, get promoted, earn more and buy their homes. Whilst the population grows and the banks lend the trend is likely to continue, however the boom of the past 24 months looks to be slowing as the backlog and build-up of eager ‘wannabe buyers’ who rushed out the gates for the first wave of these new cheap mortgages, have largely been processed and the market appears to be settling at more natural and consistent levels of interest. Property developers have not been slow to catch on and those who banked land are now enjoying pre-recession levels of development fed by a far more sustainable market; a record number of building licenses has been issued in 2018. Between the pioneer buyers phase ending and a wave of fresh stock coming, within 18-24 months we expect a price correction and market adjustment to result.

Property professionals throughout the sector are eagle eyed for signs of a slowdown as there are all the tell tail signs of overheating, but as yet it hasn’t come true. Most bear the scars of the crash and none are keen to be standing if the music stops, again.