By Robin Bowman

Investors in Romania property have seen the mortgage market grow and develop at breakneck speed - but what is actually available and what is on the way?

2006 saw the rules change in Romania and finance became more available for foreign investors.

Since then, we have seen mortgage products for foreigners advance fast. And, while it still behind other more mature CEE property markets, the Romanian property mortgage market is catching up fast - from a standing start.

We spoke to Stefan Willems, managing director of Easy Credit, a Bucharest-based brokerage company with Dutch management operating in the capital since 2005, to get a sense of how the market has changed, what's available right now and what changes we might see a little further down the line.

"It's certainly true that this market is changing very fast," said Stefan. "And, as far as foreign investors are concerned, banks now are really seeing the opportunity and they want the business.

"They are keen to sell generally because the potential is obvious. In The Netherlands, for example, where I am from, the ratio is one bank customer to eight products sold. In Romania, it's approximately three to one."

What is especially interesting is that the mortgage market in Romania is a reflection of real earnings - a subject of vital importance to property investors because it relates to affordability.

As Stefan explains, banks will often be aware of an alternative source of income beyond the official income from a local mortgage applicant, and they will grant a mortgage knowing this.

"But due to regulations as set by the NBR (National Bank of Romania) they can't grant a mortgage if the official salary doesn't match lending criteria, full stop.

"And, on top of this, since the introduction of the 16% flat tax, we personally have seen a great deal more transparency in the area of salaries. Earners are also more keen to have their salaries recorded in full to maximise their pension entitlements as well as to have easier access to mortgages. The time when a lot of employers declared the minimum wage is partially over, as most companies do declare the actual salary in the labour contracts.

"So, when you realise the mortgage market was worth €4.74 billion last year, compared to €2.24 billion last year. This is a reflection of real earnings beyond the official figures because you won't get a mortgage from a bank without demonstrating real earnings."

Looking at the last few months, Stefan revealed that the average loan for a local borrower at Easy Credit was between €80K and €120K, probably higher than many observers may have thought.

The mechanics of local borrowing are revealing.

The average net salary in Bucharest last year was around €380 per month.

"Now, you have plenty of people in the capital earning around double or triple that, and, if you think about it, double the average in, say, London or The Netherlands, is a pretty good salary. Double the average is pretty good anywhere. So, €700 per month is a pretty good salary in Bucharest.

"Of course, the reality is that in Bucharest the cost of living is the same or even higher than than man y Western European countries. So, you are not hugely better off.

"But what we find is that young, professional people, perhaps on salaries of around €700 a month, will initially use their parents' panelak as security to buy a new place."

And, of course, the key to affordability in the Romanian market, as we at Property Secrets have repeatedly pointed out is the fact that a huge proportion of the old Communist style panelaks are owner-occupied AND they are trading at high prices - the average in Bucharest is now €1,400 psm. Prices for these older apartments are inflated because of an acute shortage of new build.

Trading up to a modern new build often requires minimal borrowing.

This locked in equity - and approximately 90% of Romanian property is unmortgaged - helps explain why property prices often appear high relative to earnings.

"Yes, this happens a lot and it does explain prices," said Stefan.

"I had a client just the other day who owned an old place worth €120,000. He wanted to trade up to a new build, which cost him €165,000. So, for a mere €45,000 he was easily able to do that.

"Of course, he could also easily have borrowed more, but he chose not too.

"This is fairly typical of Romanian borrowers who are more conservative in general. They will borrow the minimum and choose the shortest term for the loan - if they can pay it off over 20 years rather than spread it over 30, then they will. That's quite a difference in attitude from western borrowers."

How have things changed and what are the best products around for foreigners?

There was a significant change last year in that the rules around mortgage lending ratios were relaxed.

Previously, banks were only allowed to lend an amount that equated to monthly repayments of a maximum of 35% of a borrower's net income (income after tax) AND a minimum 25% deposit.

Now, maximum monthly loan repayments can be up to 70% of net salary and no down-payment is required - effectively creating a 100% mortgage. The only catch, for Romanian borrowers at least, is that the loan is subject to certain conditions - +€2000 per month salary, although an applicant's final credit score is not always the decising factor.

"Of course, for foreign borrowers, this is not usually a problem," said Stefan.

This then opens up the prospect of 100% loans for foreign investors.

"In fact, some banks are already ready to value up to achieve near 100% loans - for example, I had a client buying a property at €100,000, the bank lent at a LTV of 95%, but valued the property at €105,000, effectively advancing a loan to value of nearly 100%.

"Other banks are much more conservative and will lend not on value but on contract purchase price - although there is an easy way around this."

The Romanian mortgage market is currently highly disparate, with banks operating at extremes - some ultra-conservative and others now willing to be challenged by novel scenarios and ready to search hard to find a lending solution.

"I like to think that brokers such as myself have had a big role in this, helping to release commercial instincts," said Stefan.

"Basically, I challenge the banks - if you don't lend in this case, someone else will. This forces them to compete.

"I think also the broker is able to see clearly what's on the market and to compare, so he can go to a bank and point out that a competitor has a superior product and so on, again forcing competition.

"The banking sector is still very much a personalised service. What we find is that the rules say one thing and are often very strict, inflexible and bureaucratic. And some banks will apply them rigidly.

"But anumber of banks have a VIP desk where the rules are applied far more flexibly and commercial reality is applied.

"And if a bank can see that while someone doesn't fit all the criteria in the limited rules but has, for example, a lot of valuable assets, they are not stupid - they can appreciate the risk is minimal.

"Many people will see the rules and don't bother asking. Similarly, if a person walks into most banks and presents a profile that is not straightforward, they will almost certainly be rejected out of hand. But all is often not as it seems and, in reality, there are very often ways around a problem. Having said that, self-employed borrowers are still difficult to find loans for.

"But the speed of change is very fast and we've seen a far more liberal approach in the last 12 months, I'd say.

"Last year the banks took foreign income much more easily into account, which was a big breakthrough.

"And, in many cases, too, the bureaucracy has eased a lot - where once all banks required all documents to be translated into Romanian and legalised, there are banks that are now happy to work entirely in English. But there is huge variance in attitude still."

What about available products for foreign investors now AND for the future?

"The potential of this market is huge," said Stefan. "And while I am not an economist I think some slowdown in the economy is coming, but I think demand is so strong in the property market that I can't see it having much affect.

"In future I think we may well see more fixed interest rates, bringing increased stability.

"But I think this is probably unlikely in the near term as ratings agencies are very cautious now. Most banks need to raise their capital on commercial markets and for the time being that is not going to get cheaper. But, slightly longer term, the future looks very bright indeed."

And best rates now for foreign investors?

4.95% for a loan in Euros. Swiss francs, 3.95% - preferential rates can be negotiated for certain mortgages that can result in lower interest rates.

Whether an EU citizen or not, generally you will need to demonstrate a stable income. But, Stefan explains that:

• No Romanian residence permit is necessary.
• No credit checks in the country of origin.
• Most documentation is accepted as copies sent by email, without the need to legalize or translate into Romanian.
• You'll need a minimum net income of €1500 as a foreigner.
• Or, in the case of off-shore income from a tax haven, such as British Virgin Islands , Guernsey , Jersey, Bahamas , Monaco, you'll need a minimum net income of €5,000 per month