By Anna Grybel-kloc

None of the CEE countries is immune to the financial crisis. The clearest example of this is the lowered economic growth forecasts for the next year.

Many of the effects of this slowdown are already being felt, especially in the banking sector and lending.

And while we were assured by officials and bankers from CEE countries that the banking sector is sound and still liquid, we have already seen some tightening in mortgage lending, mainly in the shape of lowered LTVs and higher interest rates.

We asked mortgage brokers in Czech Republic, Slovakia, Poland, Romania and Bulgaria what changes have taken place recently and how they affect non-residents' applicants.

Here we present a summary of the key developments in those mortgage markets.

Czech Republic

It will surprise few people that the time we keep hearing about Czech banks relaxing lending criteria is now over. Due to the recent situation in financial markets, Czech banks have started to return to of mortgage terms and conditions that applied 2-3 years ago.

Josef Malir from mortgage brokerage company Star Capital Finance operating in Czech Republic, Slovakia and Poland reports that October was the month when the mortgage market changed quickly, almost on a weekly basis.

Most banks now require a 15-25% deposit, but some will still lend 85-100% LTV. Interest rates have also gone up - most banks charging an extra 0.3%-1%, despite the recent cut in the base rate of 0.75 basis points by the Czech National Bank and Czech economists' expectation of another cut in December due to falling inflation.

The average mortgage interest rate currently varies between 5.5% and 6.5%.

The market has been changing fast and that is why mortgage brokers advise applying for Czech mortgage sooner rather than later in order to secure the best terms, even if the project is not completing in the next few months. It is worth remembering that the Czech market allows the possibility of securing a mortgage up to a year of the planned draw down.

Josef Malir additionally underlines the importance of getting in touch with a mortgage broker promptly in order to check a client's financial situation and discuss mortgage options available.

Slovakia

Czech's neighbor, Slovakia, on the other hand, has been more stable in the last few months and here the mortgage market haven't seen any significant changes.

Josef Malir believes that this is mainly because Slovak banks have always been more conservative than their counterparts in Czech and have less room to tighten lending criteria.

'In Slovakia, 70% LTV is still a typical LTV granted to non-residents, while everything above that is an exception,' says Malir.

For some non-residents Star Capital Finance manages to organise 70% to 90% LTV mortgages for up to 30 years (the borrower can't be more than 65 years old when making the last repayment). Interest rates vary from 5.89% to 6.6%, depending on the client's risk assessment (higher risk, higher interest rate).

Romania

The mortgage market in Romania has also been impacted by the financial crisis.

Stefan Willems, managing director of mortgage brokerage company Easy Credit reports that:

'Due to the credit crisis the cost of funding also went up for many Romanian banks, and some banks have halted mortgages for a temporary period (to be resumed probably in January), although there are of course still banks giving out mortgages but based on a more strict risk model. This applies to Romanians and non-residents.'

As a result, mortgages to non-residents are still available, but the terms and conditions are more conservative than few months ago.

Foreign borrowers can still obtain up to 60% LTV for newly built properties for over 5-35 years through Easy Credit, which could represent 75% of the purchase price. The mortgage could be granted only in Euro as the Swiss francs product is no longer available.

Interest rates start from 6.76% and that is a one year fixed rate, which then changes to 3 month Euribor + 3.96%. The monthly mortgage repayment can't exceed 65% of net monthly income, and an interest only period of 24 months can still be offered.

Stefan says:

'Taking into consideration the mortgage climate in Romania, we could consider these mentioned conditions for non residents to be very favourable compared to other banks that have LTVs of 50% for Romanians and debt/income ratio of 30-40% and on average do not accept non residents.'

The changes in mortgage lending in Romania were partially a result of Norm 11 issued by the Central Bank of Romania recently, essentially an edict from the central bank directing banks to tighten lending criteria.

Poland

Polish banks have also tightened lending terms and conditions recently, even though there was no official requirement from the banking controlling body, the commission of financial control, asking them to do so.

The tightening applies mainly to mortgages in foreign currencies, especially in Swiss francs (CHF), which banks are now finding harder to borrow on the money market.

LTVs on CHF loans were lowered the most and the cost of borrowing in CHF increased significantly (banks' margins and fee for granting a loan). Some banks have even stopped granting mortgages in Swiss francs altogether.

Other restrictions that banks in Poland introduced recently apply to the level of LTV for mortgages in Polish zloty. Most of the banks now require local borrowers to have a deposit (previously banks lent 100%) and they require foreign borrowers to have a bigger deposit.

For non-residents 70-75% LTV is still possible to obtain for up to 30 years.

PKO BP bank, which has a branch in London, offers an average interest rate for mortgages in PLN of 8.5% and for Swiss francs 5-5.5%.

In general banks in Poland are keener on financing finished projects or in the case of off-plan properties, those developments that are at least at the shell stage of construction.

Bulgaria

According to Bulgarian Home Loans, a company offering mortgage brokerage services to non-residents in Bulgaria, we have not seen any significant changes in mortgage lending in Bulgarian cities recently.

But Bulgarian banks tightened lending criteria earlier this year mainly for properties located in holiday resorts because of the downturn in this segment of the property market.

Some banks stopped financing such properties, others started to value thse apartments at no more than €350-€500 psm, while the marketed price generally exceeds €1,000/ sqm.

Consequently, Bulgarian banks prefer to lend to buy properties in main cities, like Sofia, Varna or Plovdiv.

For non-resident applicants, who buy in the main cities up to 80% LTV is still available for up to 25 years (typically for 20 years) through Bulgarian Home Loans.

In the case of off-plan properties the LTV level also depends on the building's stage of construction. The rule is that the more advanced the building is, the higher the LTV that can be obtained.

Interest rates for mortgages in euros are 7.5% - 11.15% and have slightly gone up in the recent months. This is mainly because of the rising cost of lending on the money markets.

According to Bulgarian Home Loans, lower interest rates may be expected next year, but major improvements in LTV level should not be expected.

Summary

Recent developments across CEE mortgage markets shows this sector has started to reflect lending trends that occurred in more developed mortgage markets earlier.

Restrictions are found in the stricter risk assessment of potential borrowers, lower LTVs and changing preferences about which property can be financed are the most common changes in CEE countries.

Other changes are strictly linked to the situation in the money markets, i.e. more difficult access to foreign currencies (especially Swiss francs) and the rising cost of borrowing them.

This results in more expensive and more difficult to get mortgages denominated to foreign currencies, which have been very popular in some countries due to the low interest rates.

The recent developments in the mortgage sector, temporary or not, will have a significant impact on property demand. The scale of the weakening depends on the level and character of restrictions.

Request a free, no obligation quote for a mortgage for your properties in any of the countries mentioned in this article here