Last year's trend of an increase in demand for property and its financing with mortgage loans has continued into this year, says Rumen Radushev, retail banking manager at Postbank.
The bank currently controls about 18 percent of the mortgage market in the country and has quite accurate data on market dynamics, Mr Radushev said during the 2022 Residential Forum organized by the City Media Group in early June.
In the past year, the total value of lending requests at Postbank increased by 21 percent, reaching 1.2 billion euro. The growth comes mainly from the spike in property prices, as the rise in the number of requests was more moderate at 8 percent. In the first quarter of 2022, Postbank saw a 19 percent increase in the total value of mortgage loan requests and a stagnation in the number of requests. "This means that all the growth is due to the increase in property prices," Mr Radushev explained.
According to Postbank, the average increase in property prices in the country is 12 percent for 2021 and 13 percent for the first quarter of 2022.For Sofia, the average price was 1,780 euro per square meter (WHEN?), which marks a 14 percent year-on-year rise, while in Plovdiv the average price reached 1,180 euro (up 18 percent, the highest rate of increase in the country). In Varna, the average price was 1,276 euro (11 percent growth) and in Burgas it was 1,100 euro (9 percent growth). "Prices are rising, but the number of transactions does not increase at the same rate and I personally expect this to lead to balancing of the market without much shock," Mr Radushev said.
More than 80 percent of the property deals take place in the country's five largest cities, according to Postbank data. Sofia has the lion's share with 51.9 percent of all transactions, up 1 percentage point compared to last year, and Varna holds a 9 percent share, also up 1 percentage point. The share of deals struck in Plovdiv declines by nearly 1 percentage point, to a share of 7 percent of the market, while Burgas and Stara Zagora hold 4 and 2 percent, respectively.
Average mortgage loan volume and borrowers' incomes rise
As for the average mortgage loan that customers apply for, it is 82,000 euro, which is an all-time high. On average, they participate with around 35 percent. Mr Radushev attributes this to the increase in people's savings on the back of incomes rising by around 10 percent year-on-year.
Another tendency is that the percentage of loan applicants with a monthly income of around 3,000 BGN and above is growing. Currently this category represents about 40 percent of the total number of requests. A total of 70 percent of all requests are made by applicants working in trade, the public sector and the IT industry. For Mr Radushev, civil servants (15 percent of all requests) are a surprise, a possible explanation being the increases in their salaries over the last two years.
In the first quarter of 2022, financing requests for apartments in buildings still under construction fell. They accounted for 8 percent of the total, down from 11 percent in 2021. The share of applications for financing of purchases in old buildings also fell, to 9 percent in the first quarter of 2022 from 11 percent last year. For the first time, the trend of buying larger homes is also clearly visible. "The loan requests for properties with three or more rooms have reached 17 percent this year," Mr Radushev says.
Mortgage rate increase anticipated, but transition ought to be smooth
"There will be a change in mortgage rates in Bulgaria at some point after a possible decision by the European Central Bank (ECB) in this direction. We operate under a currency board system, so it is likely that there will be such a change in a few months or quarters after an ECB decision. The options are 0.25 percent or 0.5 percent increase, which means there will be a smooth transition," Mr Radushev said.
He spoke before the European Central Bank (ECB) announced it is raising its benchmark deposit rate by 50 basis points to zero percent on 21 July. "Individual borrowers are the group that is most protected by law. No bank can change interest rates single-mindedly. Every customer has a loan contract and it clearly states under what conditions the interest rate can change. Mr Radushev also said that even if the ECB increases its base rate by 0.5 percent, it does not mean that the interest rate on the loan will automatically rise by 0.5 percent. "I expect things to happen really smoothly with a fairly long horizon so that clients would not really feel the effect," he added.
Two thirds of those planning to buy a home plan to use a mortgage39 percent of people say they intend to buy a home in the foreseeable future, according to a survey conducted by financial portal MoitePari.bg and credit counselling company CreditLand among 540 portal users over a two-week period in May 2022. Out of these, 66 percent also plan to finance the deal with a mortgage. Separately, 31 percent are willing to buy before the building is completed.
When asked what they expect to happen to interest rates by the end of the year, as many as 61 percent said they would rise smoothly. According to 15 percent, they won't change and 10 percent said they could not judge. Of those intending to buy a home, 51 percent said they believed that the war in Ukraine will affect property prices in Bulgaria and they will continue to rise, while 13 percent expect them to remain unchanged; 16 percent could not judge.