Mortgages in euro continue to be Bulgarian borrowers’ preferred choice according to two credit consultancy companies Fincity.bg and Credit Centre. The two companies published separate reports on the performance of the Bulgarian credit market in July based on their own experience as consultants.

“The trend in July was for borrowers to look for longer-term mortgages in euro with maximum financing,” Magdalena Cholakova marketing manager of Fincity.bg said in the analyses. This trend does not tie in with the common view that long-term mortgages are usually considered more risky than shorter ones simply because a longer period may result in more risks to the borrower. According to Cholakova, borrowers in Bulgaria had a different view on the matter. “Borrowers prefer such mortgages on the condition that they can start with smaller payments that would gradually increase in time. Borrowers rely on the notion that their incomes will continue to grow and when payments start growing then they will be able to cover them or at least renegotiate terms with the lender.” This was one of the reasons why the summer bank specials enjoyed such great attention, according to Fincity.bg. On the other hand, they have no other choice but to offer more and more attractive conditions to borrowers due to the high competition on the market.

Attractive conditions, however, did not apply to credit cards, according to Fincity.bg, where there was a lack of interest rate discounts with bonuses mostly including promotions such as grace periods.

This will, of course, benefit the large, economically active population of the country who rely on economic growth, which increases their income over the years. They will be the ones relying on banks discounts and free-of-charge services. According to CreditCentre, in July, people aged between 25 and 35 were the most active part of the population in terms of borrowing mortgages.

According to CreditCentre’s executive director Tihomir Toshev, the economically active people were those with a monthly income of about 1000 leva in Sofia and about 750 leva in other parts of the country. Toshev’s figures show that 86 per cent of the mortgages are taken out in euro. In July, all mortgage borrowers from the Black Sea city of Varna were in euro.

“Loans of between 30 000 and 50 000 euro had the largest shares of all loans in July,” CreditCentre said.  If one believes these numbers, than Bulgarians are quickly becoming richer younger because 25 is the average age Bulgarians graduate from university, which means that they either have some other form of income such as their family, or they find a good job, allowing them to take a mortgage, with ease. This assumption is not without merit, as for the past two years a number of employers’ organisations, together with the Government, have been complaining about the labour shortages, allowing candidates to carefully negotiate their terms when applying for a job.

The average amount of loans in July, according to CreditCentre’s information, was 50 376 euro, which went above the 50 000 euro range for the first time ever. In Sofia, the average amount of borrowed loans was about 67 000 euro. “This is quite accurate since a two-bedroom apartment in Sofia costs an average of 70 000 euro with banks usually covering about 80 per cent of the price,” CreditCentre said. In July CreditCentre recorded a mortgage of 500 000 euro borrowed by an individual for the purchase of an apartment in Lozenets neighbourhood. The loan has a 25-year repayment term and a monthly instalment of about 3500 euro.

The number of people who decide to withdraw after their applications have been approved has gone down by half since June, CreditCentre’s data showed . “In July the number of such clients went down to eight per cent from the previous 18 per cent even though banks raised their interest rates’ the company said. According to Fincity.bg interest rates increase in July were between 0.1 per cent and 0.5 per cent in mortgages and between 0.1 per cent and 1.45 per cent in consumer loans.

The size of banks’ mortgage portfolio has equalled consumer loans, Bulgarian National Bank (BNB) data at the end of June said.  Mortgage loans topped 6.765 billion leva by the mid-year mark, compared to 6.802 billion leva in consumer loans at the end of June, BNB said. The share of mortgages in total household loans was up to 41.6 per cent from 25.8 per cent three years ago. Mortgage lending has outpaced all other banking segments, posting end-June growth rates of 72.4 per cent and 74.6 per cent in 2006 and 2007, respectively. That momentum subsided, somewhat, to 64 per cent by the end of 2007 and to 53 per cent by mid-2008.

The consumer loan share in the banks’ retail exposures stood at 41.8 per cent at end-June versus 56.3 per cent three years earlier.  The segment grew by year-on-year margins of 23.3 per cent and 17.1 per cent by end-June 2006 and 2007, respectively. Consumer lending increased by 47.3 per cent year-on-year in the first half of 2008. The central bank attributed the robust household lending market to positive trends in employment and income growth. Mortgage lending is expected to slacken off as higher rates deter borrowers. BNB’s expectation was for domestic credit growth to slow to around 40 per cent by the end of 2008.