After a period of relative calm and short outbursts of optimism, the market for mortgage loans in Bulgaria has started feeling more seriously the negative impact from the world financial crisis, Credit Center consultants write in a recently published analysis. The month of October was particularly eventful for the banks in the country, which is a direct result from the policy of global financial institutions. During the past month we heard forecasts ranging from highly optimistic to extremely pessimistic but nonetheless, a significant amount of mortgage loans were disbursed, the experts from Credit Center say. The applications for many of these loans were submitted in previous months and this fact has helped borrowers in a period of tightening credit requirements.
The amount of the average mortgage loan in the country is currently 39,383 Euro, the data collected by Credit Center analysts indicates. The ratio of Euro to Leva loans in Bulgaria is 82 to 18. In September the average amount of mortgage loans was 43,887 Euro, in August – 47,351 Euro, while in July it was 50,376 Euro.
Presently the market is adjusting to the new bank requirements which will inevitably lead to a decrease in the volume of new loans in the next couple of months, the experts predicted. In general, new conditions mean an increase in interest rates by on average 0.5% to 2.0% and a reduction of loan-to-value ratio (LTV). It is already difficult to find deals with an LTV of more than 80%. The LTV on the average deal is currently between 60% and 80%.
The expectations are for further tightening of the conditions for mortgage loans by the end of the year due to the global credit crunch. Both interest rates and bank processing fees are likely to rise further. These are policies to which borrowers have become already accustomed and which are unlikely to be met with the same negative emotional response which they received when first instituted.
Mortgage consultants advise households to avoid applying for mortgage loans under the current conditions if the service costs on the loan would exceed 40% of the household regular income. A household should apply for a mortgage loan only after a careful analysis of its budget and after taking into account all additional costs that might arise under the current situation, which does not presume interest rate cuts any time soon.
In order to feel secure when applying for a mortgage loan, borrowers must seek the advice of financial experts or loan brokers. Additionally, they must possess sufficient cash positions covering from 30% to 50% of the value of the home that they intend to purchase and also have stable long-term income.
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