Raising Finance to Buy a Property in Bulgaria

In these days of low interest rates, many more people take out a mortgage in order to buy a property abroad. If the property is viewed simply as an investment, a mortgage allows you to increase your benefit from the capital growth of property by leveraging the property investment. If you buy a house for €200,000 and it increases in value by €50,000, it has yielded a 25 per cent return on your investment. If you had only put in €50,000 of your own money and borrowed the other €150,000, then the increase in value represents a return of 100 percent on your investment. As long as the rate of increase in the value of the property is more than the mortgage rate or costs, you have gained. In recent years, property in the most popular areas of Bulgaria has risen in value by much more than the mortgage rate.

Bulgarian countryside

The key questions are whether that will continue and, if so, for how long?

If you decide to take out a mortgage you can, in most cases, either mortgage (or extend the mortgage on) your existing UK property, or apply for a mortgage through a Bulgarian bank. At present there are few banks outside Bulgaria that will give you a mortgage on a Bulgarian property. However, given that Bulgaria has joined the EU, and given the recent explosion in the Bulgarian property market, it is likely that direct lending by overseas credit institutions will become a feature of the market.

Taking Out a Mortgage on Your UK Property

There is fierce competition to lend money and there are some excellent deals to be done whether you choose to borrow at a variable rate, at a fixed rate or in one of the hybrid schemes now on offer. Read the Sunday papers or the specialist mortgage press to see what is on offer, or consult a mortgage broker. Perhaps most useful are mortgage brokers who can discuss the possibilities in both the UK and Bulgaria.

It is outside the scope of this book to go into detail about procedures for obtaining a UK mortgage, but these are the main advantages and disadvantages of mortgaging a UK property to buy a Bulgarian property.

Bulgarian house in Rhodopes mountain


• The loan will probably be very cheap to set up.
You will probably already have a mortgage. If you stay with the same lender there will be no legal fees or land registry fees for the additional loan. There may not even be an arrangement fee. If you go to a new lender, many special deals involve the lender paying all fees involved. 1 The loan repayments will be in pounds sterling.
the funds to repay the mortgage are coming from your sterling earnings, and the amount you have to pay will not be affected by fluctuations in change rates between the pound and the euro or Bulgarian lev. Equally, earning falls in value, then your debt as a percentage of the value of the Bulagrian property decreases. Your property in Bulgaria will be worth more in sterling terms, but your m0rtgage will remain the same.
•  You will be familiar with dealing with British mortgages, and all correspondence and documentation will be in English.

Shed in bulgaria


•  You will pay UK interest rates, which at the time of writing are higher than euro rates but lower than Bulgarian lev rates.
Make sure you compare the overall cost of the two mortgages. Crude rates (which in any case may not be comparable as they are calculated differently in the two countries) do not tell the whole tale.

What is the total monthly cost of each mortgage including life insurance and all extras?

What is the total amount required to repay the loan including all fees and charges?

•  If the pound increases in value against the Bulgarian lev or the euro, a mortgage in leva or euros would become cheaper to pay off.

Your loan of €60,000 (now worth about £40,000 at £1 = €1.50) would cost only about £30,000 to pay off if the euro rose 20 percent.
•  Many people do not like the idea of mortgaging their main home – a debt they may only just have cleared after 25 years of paying off an earlier mortgage.
•  Some academics argue, in economic terms, that debts incurred to buy assets should be secured against the asset bought and assets in one country should be funded by borrowing in that country.

bulgarian nature

All in all, a UK mortgage is generally the better option for people who need to borrow relatively small sums and who will be repaying it out of UK income. If you are borrowing money from outside Bulgaria in a different currency, you need to consider the exchange rate risks.
For transferring funds from one country to another, you might also consider using a currency broker, who may be able to offer you better rates of exchange than your bank.

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