Paul Beasley asked Steve Andrews of BulgarianHomeLoans.com how far Bulgarian mortgages have come, and how far they still has to go.

Paul Beasley: What is the current state of development for Bulgarian mortgages?

Steve Andrews: Since the first mortgages for foreigners offered by a Bulgarian bank became available in June 2005, the market has witnessed plenty of developments.
However, it is important to understand that Bulgarian banks are not at the same level as UK banks from both a service and the mortgages they can offer. They are learning fast and catching up quickly, but if a foreign buyer expects Bulgarian mortgages to be as swift as mortgages in their own country they will be a little disappointed.

Paul Beasley: The UK mortgage market is awash with different products. How does this compare with Bulgarian the situation?

Steve Andrews: We are absolutely delighted to announce that as from 1st February 2007 we are now broking mortgages for Economic Investment Bank (EIBank). We feel that due to both the product that has been designed and the service standards that have been promised (yet to be tested) EIBank will become one of our preferred Bulgarian lenders. With this addition, we are now able to offer seven lenders who between them cover 100 per cent of our clients needs: BulBank, DSK Bank, EIBank, First Investment Bank, InvestBank, Piraeus Bank and United Bulgarian Bank (UBB).

Paul Beasley: What are some of the strengths of the various Bulgarian mortgages offered by these institutions?

Steve Andrews: The highlights of the Bulgarian lenders mentioned above are:
- Up to 80 per cent loan to value (or purchase price, whichever is the lowest);
- Lending to individuals or limited companies for a majority of non-Bulgarian residents;
- Rates for mortgages from 6.5 per cent variable (these can be cheaper for the first year);
- Redemption penalties on mortgages decreasing after three years to 1 per cent;
- Staged payments available from roof level onwards;
- Self-certification and reduced criteria mortgages available; and
- Re mortgages are now available from select lenders;
As you can see, the market for Bulgarian mortgages is continuing to evolve and mortgages are becoming easier to apply for, quicker to process and more competitive and transparent. Yet our work is not done, nor will it ever be!

Paul Beasley: What work still needs to be done?

Steve Andrews: We spend a lot of time attempting to influence the future development of solutions for Bulgarian mortgages. Particularly, we are focusing on the following areas:
- Improving the communication from the banks with regards to process of clients applications as well as the exact terms of their mortgage products;
- Development of mortgages which are fairer to the clients. This would mean a reduction in upfront costs, annual management charges and redemption /exit penalties. We have already seen a movement in all these areas but feel the banks can go a little further;
- Development of flexible mortgages and mortgage linked to a client's current account;
- Introduction of new product types such as buy-to-let and self-certification of income;
- Reduction in interest rates and ability for clients to choose variable, fixed or capped interest rates;
- Introduction of interest only mortgages, whereby the clients don't make any capital repayments; and
- To provide a proper re-mortgage / equity-release mortgage.
So, as you can see, plenty of work still needs to be done but I do feel that the Bulgarian banks have the attitude and hunger to compete. I think that they are aware that if they do not provide continual improvement then more developed, customer-serviced banks from other countries may well eat into their market.

Paul Beasley: On 1st January 2007 Bulgaria joined the European Union. Has this had a positive impact on the provision of Bulgarian mortgages and financial services?

Steve Andrews: One of the many purposes of the EU is to create a single market for financial services. This is something that to date the EU has failed to deliver but the European Commission is keen to make this happen. As such, a period of consultation has just finished regarding the regulation of financial services across the EU and a white paper will be introduced that will spell out the future of how financial services should be provided to clients. A key element to this is "best advice" and "treating your customer fairly." Indeed, from our investigations it appears that the EU model will almost entirely match that which is currently in force in the UK. Although this will create much work for the Bulgarian banks it will provide many benefits to clients of the bank. We are confident that with Bulgaria's strong and growing economy combined with a real rise in the Bulgarian property market and influence from the EU, the mortgage market for both foreigners and Bulgarians looks very good. We must remember that one of the most powerful drivers of property prices is access to flexible and competitive finance.

Paul Beasley: What are the advantages of taking out Bulgarian mortgages on Bulgarian property with a Bulgarian lender rather than a UK lender?

Steve Andrews: The main advantage of obtaining Bulgarian mortgages is that they are secured against the Bulgarian property and hence if the borrower cannot afford the mortgage it is only the Bulgarian property that would get reposed - and this would have no effect upon their UK residence. This is a favoured option of many aggressive property investors who are prepared to take a risk but also want to manage any downside. Secondly, if the mortgage is paid from your Bulgarian bank account and if this account is also the one where rent is paid it becomes much easier to correctly work out the net profit from letting a property in Bulgaria. When taking out Bulgarian mortgages you also have independent companies [such as BulgarianHomeLoans.com] and the legal representatives of the lender who will check that you are buying the property correctly: this is particularly important for correct registration of property and declaration of full purchase price on notary deeds.

Paul Beasley: If a foreign purchaser of a property in Bulgaria required a £50,000 loan, what broad options could a Bulgarian bank offer?

Steve Andrews: An interest rate of 6.75 to 9.90 per cent over 60 months to 180 months.

Paul Beasley: What key tips would you give to those considering taking out Bulgarian mortgages on a Bulgarian property?

Steve Andrews: Know how much you have to spend. Set a budget, and stick to it. But, furthermore, know how much you will be paying in sundry fees so you are prepared. When buying, you will need to factor in about 3.3 per cent for notary fees and taxes, and up to 1.5 per cent for legal representation. But when mortgaging as well, you need to factor in bank fees and brokerage fees, as well as money that needs to be in the account when you open it as a minimum initial deposit. None of this can be added to the mortgage. Also, get an initial mortgage approval before you sign contracts or, better still, before you bother having a serious look at property. We often have clients relying on a 5.95 per cent interest rate and 30 per cent deposit (70 per cent mortgage), who sign contracts, only to find out they can get only a 9.9 per cent interest rate and need 40 per cent deposit (60 per cent mortgage). Don't let this happen to you! The first thing you should do is get a preliminary decision.

Click here to read the World of Property interactive i-mag FREE

Search and browse Bulgarian property

For more information about Bulgarian mortgages:
Bulgarian Home Loans.com

Article first published 5 June 2007