The mortgage market in Bulgaria is still relatively undeveloped - but considerably more mature than the stage of the development of key investment markets would suggest.

For foreign investors, it offers some excellent deals - including self certs, refinancing products and interest only (in the case of one bank).

By key investment markets, we mean NOT coastal property; NOT ski property, but property investment within cities - most obviously, Sofia, the capital.

The key measure of mortgage penetration, the mortgage debt to GDP ratio was only 7% in 2006.

This rate is still very low by European standards, even by CEE standards - Bulgaria ranks third after Romania (2.3%) and Slovenia (6.6%). If compared to the EU-12 average of 53% in 2006 - Bulgarian indicator is a measure of great potential for further development.

The mortgage market in Bulgaria is small but is growing rapidly on a yearly basis - clear evidence of a growing demand for mortgages - and it is mortgage credit that, ultimately, drives any market.

The growth is caused by local and foreign buyers. But, here it is worth making a clear distinction - the holiday home market in Bulgaria is dominated and driven by overseas investors, while main city markets are driven by domestic buyers.

In 2005, the mortgage market growth was 97% - on a par with Latvia - while in 2006 it was 73.5% - the second highest, after Latvia, in the EU.

In 2007 the growth rate slowed to 67% - the slowdown largely accounted for by the credit crunch that occurred in the second half of the year.

Most, if not all of that slowdown occurred in the holiday market - as has been reported in the Financial Times - Brits, especially, have simply stopped buying holiday homes on the coast.

Some banks have now started refusing to lend to buy properties located in the resorts.

The situation, however, is very different in the booming capital.

Interest rate rises in 2008 probably can't be avoided as inflation increased to 12% (from 4% a year ago).

Mortgage lending in Bulgaria is dominated by UniCredit Bank (Bulbank), DSK Bank, Raiffeisen, United Bulgarian Bank (UBB), First Investment Bank (FIBank) and Economic and Investment Bank (EIB). All these banks offer mortgages for locals and foreigners.

Mortgage Products for Locals

Typical LTVs range from 70% to 80%. In the case of off-plan properties, the LTV also depends on the construction stage of the building - closer to completion, the higher the LTV that can be achieved.

The location of the property can also be a deciding factor - if buying property located in one of the main cities, it is much easier to get a higher LTV. This also applies to foreign applicants.

Some banks even offer 100% for domestic borrowers (120% in FIBank) - however the offer is available only to very high-income Bulgarian resident clients.

Typical interest rates are currently around 4-5% for CHF, from 6.5% for Euro and 7-8% in BGN and US$ with maximum terms of around 30 years available.

Most of the mortgages in Bulgaria are taken out in Euro over 25 year period.
Banks in Bulgaria usually charge between 1% and 2% for granting a loan and most of them apply age limit of 21-70 years. As a rule monthly mortgage repayment should not exceed 50-70% of net monthly income, subject to the bank.

Mortgage Products for Foreigners

What you need to know before you apply:

The choice of mortgage products for foreigners in Bulgaria is good - and, along with repayment and self-certification mortgages, re-mortgaging is also available.

Interest-only mortgage is currently offered only by Piraeus Bank for up to 10 years. The LTV is a max of 75%, and the current rate is 7.25% for Euro loans only.

With FIBank you can apply for a three year interest-only period, while with DSK Bank the period is one year.

The mortgage processing time usually takes 12 weeks on average, once all the required documentation is received by a bank, but may vary from six weeks to six months.

The necessary documents, when applying for mortgage are:

1. For all applicants

- ID/ passport
- Marriage certificate (if applicable) - with some banks married couples must apply together
- Preliminary purchase contract
- Credit report from Equifax or Experian

2. For those employed

- P60 and payslips for the last 3-6 months (or bank statements)
- Letter from employer confirming the role, income, start date

3. For self-employed

- 3-6 months bank statements
- Tax returns for the last 2-3 years
Some banks require that the documents are translated and/ or certified by the issuer.

Affordability is based on the fact that monthly repayments can't exceed 50-60% of net income.

A bank's fee for granting a loan is typically 1-1.5% and a mortgage broker commission on completion is around 0.5% (minimum £200), plus the application fee of around £600.

Early repayment penalties vary from 3% to 2%.

What's available

The current products for foreigners described below are based on Bulgarian Home Loans offers.

LTVs for foreigners are typically of 60-80%, subject to the bank, location of the property and in the case of off-plan - the stage of construction.

For example, Raiffeisen's rule is clear: up to 80% is available for completed apartments, up to 70% for roof level stage and 60% for regulated land stage.

As a rule, LTV is calculated on the purchase contract price, however when applying for a repayment mortgage with Raiffeisen, the LTV is based on the bank's valuation, not the purchase price.

The mortgage is disbursed usually in one payment. In the case of off-plan properties with stage payments, most of banks will agree to make them only when the building is at the roof-level stage of construction.

The repayment period is typically 20-25 years. Mortgages can be issued in Euro, BGN and US$ and interest rates are typically around 7% for Euro and 7-8% for BGN and UDS$.

Raiffeisen offer self-certification mortgages only for properties located in major Bulgarian cities (or as part of golf course developments). Tellingly, properties in holiday resorts do not qualify for self-cert mortgages.

Apart from Raiffeisen, Invest Bank and FIBank also offer self-cert mortgages for foreigners. LTVs vary from 60% to 80% over a max of 20 years, but the interest rates will be higher than normal.

Re-mortgaging products to foreigners are offered by three banks: Piraeus, DSK Bank and EIB. LTV is no more than 60-75% over 5-15 years. This product is available in Euro only and interest rates start from 7.5%.

Conclusion

Mortgage lending in Bulgaria is still a small sector with huge for potential to grow in the future. On a yearly basis, the market is already growing extremely rapidly.

There is a relative lack of competition among lenders and mortgage brokers, which is mirrored by the fact that brokers' fees and commissions are quite high.

The greatest choice of products is for repayment mortgages, while several banks also offer refinancing and self-cert options.

Interest-only mortgages are possible to obtain - but as yet only one bank offers such a product.

Buy-to-let mortgages are not available.

Banks in Bulgaria are still relatively conservative in their lending and LTVs don't exceed 80%, while the repayment period is usually no longer than 20-25 years.

In calculating LTVs bank are also cautious.

The application process is lengthy and fairly bureaucratic if compared to UK standards, but not especially so relative to other CEE markets.

It is very likely that in the next year Bulgarian banks will liberalise application procedures and improve lending terms and conditions considerably, as the market rapidly develops...... AND, as far as foreigners are concerned, the focus moves away from the high risk coastal developments to the greatest potential investment returns - in Sofia.