As many property investors look to expand their property portfolios in Eastern Europe finance is becoming the major limiting factor. But what exactly is on the market in the three major countries where Property Secrets is currently active?

The Czech Republic

The Czech Republic has always enjoyed one of the most advanced mortgage markets in Eastern Europe.

In the high price growth times before EU entry, 85% LTV mortgages were available to foreigners. The reality, though, was somewhat different.

As Czech banks were very cautious they were wary of such high growth and they typically discounted market valuations by 10-15% for mortgage purposes, taking the effective loan-to-value down to around 75%.

In the years since EU membership, the finance market has developed considerably and still has the best finance - along with the Baltic countries - in Eastern Europe.

Products

There are now 100% LTV mortgages on the market for foreigners. Though the practice of discounting the value to reach a bank value still persists, however, the discount is now around 5-10% so LTV's of 95% are now possible.

Typical interest rates start from around 4.3% with terms of 20 to 30 years.

Refinance and non-status mortgages are also now available in the Czech Republic, which is an excellent sign of a maturing property market.

It is also possible to get mortgages when purchasing through a company or if you are self-employed. The terms you can achieve via these methods are, of course, subject to status.

How long does it take to get a mortgage in the Czech Republic?

Typically mortgages can be arranged in around 8 weeks in the Czech Republic, provided you supply all the necessary documentation promptly.

What paperwork do I need to provide?

Typically the documents you need for when securing a mortgage are as follows:

• Passport
• Letter from employer confirming position, duration and income
• Bank statements showing income being paid in
• Bank statement showing deposit monies
• Confirmation of other income if applicable (e.g. from letting other property)
• Details of property to be purchased
• Residency permit or company documents if buying through an S.R.O.

Banks

There are a number of banks that offer mortgages to foreigners nowadays in the Czech Republic. Some examples are as follows:

• HVB www.hvb.cz
• Ceska Sporitelna www.csas.cz
• Komercni Banka www.kb.cz
• CSOB www.csob.cz

Rather than contacting the banks directly we recommend you contact a reputable finance brokers such as Star Capital Finance who will advise you which product best meets your circumstances.

Brokers

Star Capital Finance is one of the premier mortgage brokers in the Czech Republic. They have English speaking staff who can guide you through the whole process of obtaining a mortgage in the Czech Republic. We recommend you contact them before purchasing property in the Czech Republic.

This is Paul Wild of Star Capital Finance and his view of the Czech mortgage market:

"Currently in the Czech Market we are able to obtain up to 100% Loan to Value, with a 30 year tenor. This is now available to clients buying through a Czech Limited Company or through an EU Card. The majority of our clients take between an 85% and 90% Mortgage as at these levels the rental income comfortably services the mortgage repayments.

Self Employed Clients, providing they talk to us early in the process can also receive 100% and Investor Clients, ie professional property investors with their main income from property rentals can expect also, providing they involve us early, can receive up to 100%. Clients need to consult with us early so that we can prepare them for the additional documents which are needed and also allow time for us to tailor make their application and properly present it to the bank.

Clients must be willing to supply documents that they may feel are not relevant or a "hassle" to obtain. Clients need to remember that the systems and process in CZ are not the same as the UK or Ireland.

Foreigners now receive the same mortgage pricing as locals.

Interest rates in the Czech Republic are the lowest in Europe, although a slight increase is expected as rates loosely track Euro interest Rates.

Rates are, therefore, much lower than the UK making the Czech market very attractive to investors.

At Star Capital Finance we specialise in International Clients. Each client is allocated a Mortgage Advisor; we have online application forms to ensure the process runs smoothly. Whilst we cannot be regulated by the UK Financial Services Authority and the mortgage market is not regulated as it is in the UK we do adhere to Western Best Practices."

http://www.starcapitalfinance.com

Future developments in the Czech finance market

There have been rumours circulating in the property industry that interest only mortgages may appear on the market sometime in the next year. The mere fact that this is being considered is a positive sign.

The million pound question is when will buy-to-let mortgages be available? The answer is that no-one knows at this stage in the market's development, but is still expected to be a few years away yet.

Poland

Starting from a point, just over 5 years ago, when mortgages were barely available even for locals the finance market has come a long way in a short space of time.

The range of products that has come onto the market - particularly in the last 3 years - has increased dramatically. Since 2004 / 2005 property price growth in Poland has been very high and banks have been falling over themselves to lend to the Polish consumer with a strong appetite for owning their own home.

Locals are able to obtain 100% LTV mortgages with interest rates at just over 3% when borrowing in Swiss Francs. For certain professionals such as doctors and lawyers it is even possible to get 120% LTV mortgages.

Products for foreigners

Mortgages for foreigners started to become widely available after Poland joined the EU in May 2004.

A typical mortgage in Poland currently has 80-85% LTV, interest rates of between 3.5-7%, fees vary from between 0.5-3% and terms of up to 50 years are possible with 20-30 years being typical.

Note that loans taken out in foreign currency, such as Swiss francs or euros, usually attract a 1% currency conversion fee in Poland.

It is possible to mortgage final finish and kitchens if you provide sufficient detailed information about what has been installed into your property.

What paperwork do I need to provide?

Typically the documents you need for when securing a mortgage are as follows:

• copy of ID + address proof
• salary confirmation
• last three payslips
• three months of bank statements
• last year's tax declaration
• credit report from Experian, Equifax or CheckMyFile

How long does it take to get a mortgage in Poland?

It is wise to allow around 3 months to obtain a mortgage in Poland, though this time scale is subject to your status. In general as the Polish banks become more accustomed to dealing with foreigners the banks processes are getting more efficient and it can be possible to get approval within in 14 days.

Banks

Noble Bank is, probably, the easiest bank to obtain a good LTV mortgage from in Poland as a foreigner, the biggest downside is that the margin above the base rate is slightly higher than other banks. They now have a dedicated underwriter for foreign clients.

Jakub Krol
Financial Advisor
T: +48 22 31 95 665
M: +48 66 302 1351
E: jakub.krol@noblebank.pl
W: www.noblebank.pl

Deutsche Bank has recently started offering mortgage finance and refinance to foreigners. Interest only mortgages are possible for 2 years after the 1st drawdown of the mortgage. They have good rates but paperwork could be onerous. Redemption penalties apply for the first two years.

Millennium Bank now offer mortgages for foreigners. Critically they offer mortgages based on value not just price. This means that investors can obtain very high effective LTV's compared with the price they paid for their property in Poland. Redemption penalties [2%] apply in the 1st three years.

Raffeissen Bank is in the process of launching finance products to foreigners. They are also working on an exclusive mortgage product for Property Secrets' clients.

Banks such as BZWBK also offer a mortgage in principle, though their terms are not as competitive as some of the other banks.

BPH Bank have been offering mortgages for a couple of years now to foreigners with LTV's of around 80-85%, though foreign investors have found it difficult in practice to obtain a mortgage through BPH Bank.

Justyna Marcinkowska
Residential Mortgage Manager
BPH SA
T: +48 502 357 373
M: +48 502 906 500

Mortgage Brokers

The recently established Rednet Finance is aiming to provide an array of mortgage products for foreigners in Poland.

Rednet Finance
Anna Wacikowska
ul. 1 Sierpnia 6A,
02-134 Warsaw
T: 0048 22 318 72 00
www.rednetfinance.com

Open Finance are one of the biggest mortgage brokers in Poland though they are part of the same company as Noble Bank so it is often best to contact Noble Bank directly.

www.openfinance.pl

Future Developments in the Polish finance market

Mortgage products, for foreigners, in Poland have reached a point where there is starting to be some serious competition for clients business. We have recently seen the introduction of refinance products and interest only periods at the start of the loans.

Banks have realised the growing mortgage market for foreign investors and are starting to tailor their products to attract foreigners and streamline their processes to make the paperwork easier.

For here on in we will see the mortgage market mature still further. As banks compete for business the products available will become better and better.

Romania

A new mortgage law was introduced in Romania in April 2006 that allowed banks to lend to both locals and foreigners up to 75% LTV.

This change in the law, in advance of Romania's entry to the EU in 2007, was the catalyst to a number of mortgage products coming on to the market for locals.

Products for foreigners

A few months after this law change a number of banks also started to put in place products for foreigners. Some of these were tentatively released on to the market but the actual practicalities of obtaining one of these mortgages was near impossible.

However, in the last month a Romanian bank has launched a mortgage product that is available to both locals and foreigners.

The broad terms are:

• 75% LTV mortgages available subject to status
• Rates from 6% Euro mortgages available
• up to 30 year terms (capital and interest)
• refinance is not available

We expect that there will be some teething problems with this mortgage and it may take longer to obtain than we are used to in the UK.

Since Romania joined the EU in January 2007 Romania must comply with EU law. Romania is has been forced to remove the restriction of banks loaning only up to 75% LTV. This should pave the way for better mortgage products for investors in the future.

Alpha bank has recently been given the go-ahead to offer 100% LTV mortgages in Romania to locals. Though it is expected that the product they bring in will not be at such a high LTV for the simple reason that they don't need to offer such an attractive product as there is no competition above an LTV of 75%.

There are currently more mortgage products waiting in the wings which we expect them to be launched within the next year - before many of our Romanian investments are due to complete. So in the medium term the outlook is positive for the Romanian mortgage market.

How long does it take to get a mortgage in Romania?

Due to the fact that the first mortgage products are just being released on to the market for foreigners we know of no-one who has actually obtained a mortgage - yet! However, it is expected that a mortgage will take around 3 months to obtain in Romania once all the paperwork has been done, though it is always wise to allow some flexibility in your financial plans in case it takes a little longer than this.

If you are self employed or have a low provable income then it may be very difficult to a mortgage in Romania.

Brokers

Creditlink SRL is a mortgage broker, catering for non-Romanian nationals, based in Bucharest.

They are working with several banks which are in the process of making lending available to foreign investors. They believe the Romanian mortgage market will evolve rapidly both in terms of product range and lending rates - with continued progress anticipated throughout 2007 and 2008.

http://www.creditlink.ro

Future developments in the Romanian finance market

As more products are launched the market will become more competitive, interest rates will come down, loan-to-value ratios will increase and the time it takes to obtain a mortgage will be reduced. In all the mortgage market will mature and become more advanced.

We can draw similar parallels between the mortgage markets of Romania and Bulgaria.

3 years ago there were no mortgages available for foreigners in Bulgaria. Piraeus Bank was the first bank to introduce a proper mortgage for foreigners. Terms were 70% LTV, interest rates of near 10% and a term of 20 years. These days there are 8 banks offering mortgage products. You can now get 80% LTV, interest rates around 6.5%, increasing terms and even partial interest only periods and refinance is available.

It is reasonable to assume that Romania may develop in a similar manor and its mortgage products will become increasingly attractive.

Conclusion

It is worth putting these 3 markets in context of each other.

The Czech Republic has the most advanced mortgage market of our 3 core markets with the highest LTV, lowest margins on interest rates and refinance products available.

Poland's mortgage market has developed quickly and in May 2007 we saw the first refinance product appear. In Poland you can get good LTV's of 80-85% and interest rates of between 3.5 and 6.5%.

Interestingly, the Czech mortgage market around 2 years ago looked similar to how the Polish mortgage market looks today.

In the next couple of years we can expect the products on the Polish mortgage market to further develop and improve in a similar way to the way they developed in the Czech Republic.

Romania has the newest and consequently least developed mortgage market.

Mortgages for locals only practically became available for locals in May 2006 (they were available before this time but were extremely difficult to obtain).

May 2007 has seen the first real mortgage product for foreigners. We expect that by the end of 2009 we will see many more such mortgage products on the market with better terms and conditions, and ultimately the mortgage market will develop and trend towards more advanced market such as the Czech Republic.