Mortgage and consumer lending in Bulgaria were on the rise in 2016 in the context of a reviving housing market. The volume of mortgage loans in the banking system increased by 1% in the previous year, while the decrease of interest rates reached 88 b.p. since the beginning of the year and in October the average interest rate of the newly granted mortgage loans was 4.69%. There was also a growth in the newly granted consumer loans as well as a gradual decrease of the interest rates. These lending trends were noted during the previous year by the colleagues from Retail Banking Division of UniCredit Bulbank on the basis of their observations and market data and on the market data provided by the Bulgarian National Bank (BNB) throughout the year.
In 2016 there was a growth in the total volume of loans for individuals and households in the banking sector amounting to 0.9% on an annual basis and reaching BGN 18,490 million as of October (according to BNB statistics). The increase is mainly in consumer loans with longer maturity and also in mortgage loans.
„Our observations show that more and more customers choose loans in BGN. The volume of granted mortgage loans in foreign currency is only 15%. The average amount of the granted mortgage loans is BGN 82,000 with a repayment period of 22 years. About 85% of the financed purchases are of apartments and about 14% are of single-family houses”, Krum Aleksiev, Head of Marketing and Segments Department of UniCredit Bulbank, commented on the current trends of the year.
According to data from the real estate agencies in the country, the housing market registers a considerable growth and the demand exceeds the supply. There is growing interest in residential properties of three and more rooms which according to the experts from the sector is due to the increasing number of buyers purchasing residential properties for personal use and not with the purpose of investing. In the end of July this year the Law on Consumer Credits Relating to Immovable Property was published, regulating mortgage lending in a separate regulatory deed pursuant to Directive 2014/17/EU. The changes led to greater transparency of the terms and conditions and to better consumer protection according to the experts on mortgage lending of UniCredit Bulbank. In their words, as some of the changes were introduced as early as 2014 with the Consumer Credit Act, there were no significant changes in the terms and conditions or characteristics of mortgage lending this year.
„With regard to the price offers, competition on the banking market caused a constant decrease in the interest rates, with a focus on special offers and a clear trend towards individually negotiated terms“, said Krum Aleksiev.
In a situation of significant competition, UniCredit Bulbank preserved its market share of 19% in the mortgage loans field. Since the beginning of the year, the bank has adopted an approach with a clear and simplified offer and has provided its customers with an opportunity for an additional funding to cover their costs related to the purchase of a property – broker’s commission, notary and other fees. In addition, borrowers have the opportunity to renegotiate the price terms under their mortgage loan without paying a fee for the first renegotiation.
The trend on the consumer loans market is similar to the one on the mortgage loans market – there are a growth in the newly granted loans and a gradual decrease in the interest rates which were noted by Retail Banking Division of UniCredit Bulbank. The total amount of the consumer loans granted by the banks in 2016 is BGN 2,678 million and EUR 75,8 million, and UniCredit reports an increase in the new sales by 10,1% in comparison with the end of 2015.
Experts’ observations show that the loans are usually used for covering larger household costs – for repairs, purchase of a car, further payment of real estate property or for refinancing of liabilities in other banks with the purpose of consolidation of the installments.
Offering more and more products for refinancing with the purpose of consolidating current liabilities is turning into a trend on the consumer loans market. This is not by chance and it meets the greater demand of consumers. They are looking for refinancing offers in order to consolidate their liabilities and pay one instead of several monthly installments (very often in different banks or financial institutions), and on account of the better price terms, which they can receive with the special offers, if they refinance or consolidate their liabilities.
Another reason for taking consumer loan is for further payment for a purchase of a real estate. The revival of the real estate market during the previous year increased the demand for additional financing possibilities. Customers often use their own funds to purchase a property and request a consumer loan for further payment or for covering additional costs related to the purchase or to subsequent repair.
Following the mortgage boom in 2006 and 2007 and as a result of the regulatory requirement for their renewal on the tenth year following the signing of the agreement, some customers with a small residual debt chose to take a consumer loan in order to repay the mortgage one in advance. This is possible due to the high maximum consumer loan limit in the amount of BGN 50,000. The average consumer loan amount is about BGN 8,000 and the average period is 80 months. 60% of the customers applying for a loan are between 30 and 50 years old, i.e. at an active working age.
The key factors that lead to the customers' decision related to financing are both the price and service level, and the accessibility of the product, the easy application procedure and the time necessary for concluding the deal.
Aiming at offering products that are unique for the market, UniCredit Bulbank AD, being one of the leading banks on the market of lending to individuals, offers additional benefits to its customers applying for a loan. They have the opportunity to save up with minimum monthly installments in their individual batch, in a voluntary pension fund for their personal pension or in a mutual fund with an acceptable risk level. Another benefit for the borrowers is the opportunity to determine on their own and repeatedly modify the used package of paying products and services – included in the Modula Program, by paying one fee in addition to their current loan.
"In 2017 the trend towards increased offering and competition between the financial institutions will be preserved”, forecast Krum Aleksiev. The attractive offers with clear and transparent terms and conditions combined with the stable labor market will keep the trend towards increase of the lending and encourage households to purchase new residential properties. It is expected that in 2017 the trend towards slow decrease of interest rates for consumer and mortgage loans will be preserved, too, just like the share of customers requesting refinancing in order to consolidate their liabilities under better terms will continue increasing.
Additional media information:
Victoria Blajeva, tel +359 (0) 2 9264 993, wjlj/ebwjepwbAvojdsfejuhspvq/ch
Beatris Nikolova, tel +359 (0) 2 9232 528, cfbusjt/ojlpmpwbAvojdsfejuhspvq/ch