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BULGARIAN MORTGAGES
Being a relatively new market, Bulgarian mortgages have taken up speed in the last two years. With the succession of Bulgaria to the European Union, most banks started to redesign their mortgage plans becoming more flexible and adopting to European standards and clients. If only a year ago, very few banks offered mortgages to foreigners and only for completely finished properties, now most institutions will finance a non-Bulgarian resident even at an earlier stage of property construction.
The biggest difference in the mortgage market to the rest of Europe is that mortgages have to be secured after the purchase legal process has been completed. This means that funds are not transferred until a few days after sale completion. The bank provides the seller with a bank guarantee of funds to allow transfer of property and then these funds are transferred a few days later. It is important that an interested buyer checks upfront that the developer/ seller would not object to such practice and is aware of the case of non cash purchase. Approval is usually quick and efficient but a borrower may be asked to provide a lot more documents than would be the case in other countries.
The benefits of establishing a Bulgarian mortgage is that the loan will not be linked with UK assets but only with the property of interest in Bulgaria. Rental payments received within Bulgaria can be paid directly to an account in the same Bulgarian Bank that holds the mortgage. This creates a simple self contained business unit. All rental income will be paid in euro and all mortgage payments are also made in euro which will make it easier to repay mortgage through rental income. Taking out a Bulgarian, rather than UK or Irish, mortgage can keep all of the financial transactions within one country. Many people consider this situation to be advantageous for reasons of privacy. It keeps to a minimum the number of cross border (and currency) transactions. And above all, some Bulgarian banks offer more favorable conditions than British banks.
APPLICATION DOCUMENTS
Documents that banks require from foreigners are listed in the table below as each bank defines its own set of documents in order to investigate the borrower’s creditworthiness.
Creditworthiness documents
· Application form - Provided by the bank
· Copy of ID/ Driver’s License
· Provable place of residence - Copy Utility Bill
· Copy Birth Certificate
· Equifax/Experian Credit rating score - A numerical value based on the analysis of credit report that is used by creditors to predict how likely an individual is to repay a new loan.
· P60
· Last year’s tax return
· Bank statement - For at least previous 6 month confirming stated salary paid into bank account
· Bank reference - Regarding the financial standing of the applicant
· Accountant certificate
· Pay slips - (6 months at the most)
· Power of Attorney
· Copy Mortgage Statement or Copy Rental Agreement
· Declaration of Assets and Liabilities
· Marriage certificate
· Employer reference - Signed and sealed by the borrower’s employer confirming emplyment position and salary and how long with company
· Self-employed borrower (in addition to the above) - Nature of Business and how long it is established; Gross profit/ Turnover/ Net profit figures for most recent financial year and 2 immediately prior years; % share of the business
Property documents
· Preliminary purchase agreement
· Property ownership documents - Provided by the property owner , may include the following: Notary Deed for land ownership; Company registration papers (Court Decision and Actual State of Company); Architectural plan; Plan of the land plot; Permission to build
· Certificate for lack of encumbrances - Issued by Bulgarian Registry Agency
· Tax evaluation certificate - Issued by the Bulgarian National Tax Agency
· Property market value certificate - Issued by a real-estate appraiser, authorized by the bank
Some banks require that a foreign borrower provides contact details of a Bulgarian citizen, whom they can call in case a problem occurs during the loan application. Other institutions need a co-borrower, who is responsible for repaying the loan in case the borrower defaults. An application with both a contact person and a co-borrower is also possible. It is important to say that Bulgarian banks either do or do not require that documents issued in another country be legalized before the borrower can use them in Bulgaria.
MORTGAGE TERMS AND FEES
The amount of the mortgage loan is defined by several factors:
- the agreed purchase price;
- the bank’s evaluation of the property;
- the maximum mortgage amount set by the bank;
- the Loan to Value (LTV varies from 65% to 90% ), which is the ratio of the loan that will finance the purchase to the market value of the property. The market value is different to actual purchase price of the property. It is defined by the bank’s evaluation of the property performed by an expert appraiser and it is usually lower than the purchase price.
- the borrower’s creditworthiness (all existing liabilities including any mortgage/ rent payments, personal and bank loans or divorce/ child support payments together with the proposed Bulgarian mortgage payments must not exceed 50 % of the net monthly income)
At present, different types of mortgage plans for various purposes are offered on the Bulgarian market, i.e.:
- to buy new property,
- to build houses or second/ holiday homes,
- to finance finishing or refurbishing works,
- to refinance/ secure other debts (other mortgages with different banks)
- Mortgages with fixed rate over a certain period of time
- Mortgages based on standard bank variable rates;
- Interest only mortgages (for over a certain period of time)
- Repayment and Interest mortgages
Currency - Euro
Loan term - the maximum term for repaying the loan varies between 15 and 30 years;
Applicant’s age - not more than 70 years old at the end of the repayment term
Loan to Value - 65% to 90% of the purchase price (depends on bank’s evaluation of property and applicant’s creditworthiness)
Repayment type - Interest only (over a certain period of time) and Repayment and Interest
Interest Rate - 6.2 – 9.5 %
Building and Contents Insurance - about 200 EUR per year
Mortgage Arrangement and application fees - about 1 – 1.5 % of the loan amount
Notary and Registration costs - about 3%
Legal costs - about 1%
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