High Interest Rates – Necessity or Curse

During a discussion between the managers of some of the leading property agencies in Bulgaria, held in December 2009, the participants discussed the increased interest rates under mortgage loans. Here are some of the highlights of the discussion:

„The high interest rates which the banks had to implement in the last year or so were absolutely necessary and an adequate business decision”, thinks Dobromir Ganev, Managing Director of Foros. According to him this is a measure that can be compared to those which companies from various sectors undertook to deal with the current situation – decrease of the area or the price, change of the office, make redundant part of the staff, decrease of salaries, etc. Of course, we cold always blame the banks that in the last few years when the market was strong they were giving money and a lot of Bulgarians got loans which they now find difficult to repay. “I think this is a part of the lessons in financial culture which every citizen must learn and in the future they must think carefully before making a decision about similar long-term commitments of their family or company. The market demanded this decision of increasing of the interest rates”, he adds.

“I would say bank lending was the big element absent from the property market in 2009”, says Polina Stoykova, Chief Operations Manager in BULGARIAN PROPERTIES. According to her it was normal at a time of crisis the lending process to be stricter but it was as if the banks in Bulgaria played it safe – on the one hand, with the very high mortgage interest rates and on the other – with the stricter lending criteria. “I understand the latter completely – there must be strict rules and they must follow objective solvency indicators of the loan applicants. But the too high interest rates drove back the people who could have been approved for bank financing”, adds Ms Stoykova.

In the beginning of 2009 the banks withdrew from the market completely, thinks Mladen Mitov, analyzer in Yavlena. According to him in May-June the banks gave partial loans only for the purchase of a home with Act 16. Only around the third quarter of 2009 did the banks eased the grip and started giving loans for properties at an Act 15 and Act 14 stage of construction.

“The deals concluded through our company also get financing of 60 to 80% of the property’s price,” adds Tatyana Emilova from Colliers International. According to her it is not the high interest rates that are a problem in the bank-buyer relationship but the people’s insecurity whether they will be able to service their loans in the future.

This is also the opinion of Ivan Velkov from Reiffeisen: “It is quite normal the banks to have restrictive conditions for loan applicants. The problem is not the interest rates but people’s income and the period of the investments made by developers and builders”.

“The banks and their clients are in the same boat therefore the banks support those who cannot pay the installments under the old loans and reschedule their debts”, thinks Tanya Koseva-Boshova, Executive Director of the European Trade Center.

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