“Great surge in mortgage lending – conclusions, risks, advice – see the participation of Tihomir Toshev and listen to his advice on risk-free lending”
The hyperactivity in mortgage lending poses risks related to people’s inability to properly assess their real financial capabilities. The monthly installment on a loan should not exceed 30-40% of their income, however the banks in Bulgaria sometimes allow it to exceed 50%. Borislav Gostev, Head of Trade Partner Management Department at UBB and Tihomir Toshev, Executive Director of “Credit Center” united around this statement in the show “ImoTiTe” with host Hristo Nikolov.
2021 is shaping up to be a record year for mortgage lending in the recent history of Bulgaria. According to data from BNB, mortgages are totaling BGN 3.8 billion for the period January-September, a 39% increase compared to the same period a year ago and 44% compared to 2008 – the strongest year for mortgage lending before the global financial and economic crisis.
Especially for young people, our advice is that payment installments on all their loans should not exceed 30% of their total income, said Tihomir Toshev.
“They are at the beginning of their careers and they want to grab life with their fists full.” Young people should not give in to emotions and be careful when they go into debt for 25-30 years, which is the strandard period for most standard loans these days. They don’t need to immediately have a 3- or 4-bedroom apartment in the center of Sofia.”
Buyers should not forget that they are also bound to pay the transaction costs for the property, as well as that in the last two years the cost of repairs has increased significantly, said Borislav Gostev.
“Mortgage applicants can do an experiment to assure themselves – let them set aside the amount equal to the expected monthly payment in advance and see how this will affect their budget and their standard of living.”
People with lower incomes are starting to “frown” at the current housing prices and exit the market. They look around for 2-3 months and see that with the money they have, they cannot buy what they want. So far, these people are few, but the increase in this group will show that the balance between prices and income has been disturbed already, said Tihomir Toshev.
“For now, there is no bubble in the market. But if housing prices continue to rise faster than incomes, the danger of a bubble will prove real. We must not forget what happened in 2008.”
The main risk of rising prices in Bulgaria is that housing will become less affordable for people with more modest incomes, added Borislav Gostev. He explained that UBB is carefully approaching those employed in the hotel and restaurant industry – the two sectors most affected by the pandemic.
“We analyze whether individuals have been out of the labor market for a certain period of time, whether they were on unpaid leave, whether they have a reduction in income. We are also analyzing their employer – whether it is servicing its corporate loans regularly, whether it has staff cuts and how it is dealing with the crisis in general,” Gostev explained.
“If the applicant is part of the team of a hotel that did not open in the summer, he will certainly be denied a mortgage loan. People working in hotels where layoffs have been implemented will also have a problem,” Tihomir Toshev added. According to the Executive Director of “Credit Center”, the number of cases with property valuations related to mortgage applications that differ from market prices has been increasing recently.
In 8% of the banks’ valuations for the current year there is a deviation of 5% to 10% compared to the agreed prices between buyers and sellers, and in 4% the deviation is more than 10%. However, the bank’s valuation is not always lower than the markets’, there are also the opposite cases, said Toshev.