Choosing a UK or Bulgarian mortgage for a property in Bulgaria

After doing plenty of research into buying property in Bulgaria, it can be difficult to curb your enthusiasm and delay flying out to inspect every Bulgarian property that fits your criteria. But if you need to borrow in order to finance your dream Bulgarian property, you really should pause for a moment to decide whether you want a UK or Bulgarian mortgage. This is not just forward-thinking, it could also save you money.

A UK mortgage to buy Bulgarian property

A bank will only lend money against a property in the same country. Therefore, you would need to re-mortgage your home in the UK to release equity for property in Bulgaria. This obviously puts your main home at risk if you were to default on the loan.

There are advantages to funding Bulgarian property in this way. For example:

• If you already have a UK mortgage, there will be no legal or Land Registry fees if you obtain a further advance. There may not even be a bank arrangement fee.
• Re-mortgaging to borrow a larger amount can sometimes result in paying a lower interest rate than you a currently paying.
• There is a more comprehensive range of mortgage products and greater flexibility.
• You may be able to raise more money this way than with a Bulgarian mortgage on the Bulgarian property.

In some countries it is possible to obtain a mortgage through a branch of your UK bank. This is not currently possible when buying property in Bulgaria because no UK banks have yet set up branches there.

Bulgarian mortgages for your Bulgarian property

If you arrange to mortgage your property with a Bulgarian bank there will be higher set up costs amounting to around 3-4% of the amount borrowed. Bulgarian mortgage interest rates are currently about 7%

Bulgarian banks will typically loan only 60-70% of the value (not purchase price) of a property in Bulgaria. UK lenders will re-mortgage a property for up to 95% of its value.

A Bulgarian mortgage normally reduces the amount of inheritance tax payable when an owner dies by reducing the net value of your Bulgarian property. However, the country´s inheritance taxes are so relaxed this is only an issue if someone other than a close relative inherits your property in Bulgaria.

A Bulgarian mortgage can take up to three months to arrange so do not commit to buy a property in Bulgaria until you are confident the funding will be in place on time. Penalties for delaying completion on Bulgarian property can be steep.

If you plan to repay the mortgage from your UK earnings you will be exposed to major currency risk. This can dwarf the potential savings on interest payments because of wild fluctuations of Sterling against the euro.

Your individual circumstances will dictate whether a UK or Bulgarian mortgage will be right for you. Remember that a mortgage represents a huge financial commitment so think carefully about what type suits you best and seek expert advice.

So before you hop on that plane to begin looking for property in Bulgaria, get the mortgage process moving. Seek qualified legal advice before you sign anything. Make the most of both your Bulgarian property and your UK home by making the right choice about UK and Bulgarian mortgages. The correct decision could net you thousands of pounds.