by Stanislava Ciurinskiene

Optimists claim that Bulgaria will survive the credit crunch unscathed, others see many homeowners squeezed by interest rate hikes

In July a Bulgarian bank approved a 500,000 euro mortgage for an apartment in Sofia. To repay the loan, in the next 25 years the "lucky" borrower will pay monthly instalments of 3,500 euros. The media has been touting this record loan as an example that Bulgaria has successfully avoided the repercussions of the global credit crunch. But is this a fact or just wishful thinking?

Local experts claim that Bulgaria's property market is an oasis unscathed by the devastating effects of the credit crunch and the general economic downturn. In a way, this is true – after all, Bulgaria has never had a credit boom big enough to lead to any credit crunch. After a handful of financial institutions went bankrupt in the 1990s robbing thousands of people of their savings, Bulgarians became very cautious when dealing with banks. While at the beginning of the 21st Century in another corner of Eastern Europe – the Baltic states – people were buying properties by borrowing at 3.5 to 4 percent interest rates, Bulgarians did not even want to hear about bank loans. Before 2005, interest rates were too high to allow a malignant credit boom (17.90 percent in January 2000 and 10.57 percent in January 2005). Now, although it is widely believed that Eastern Europe has not suffered the consequences of the credit crunch, property prices are plummeting in the Baltic states. In Latvia, prices dropped by 20 percent in a single year. In Bulgaria, property prices for some segments are stable, others have been rising, and still others skyrocketing.

"Credit crunch" is a term used to describe a sudden reduction in the general availability of loans or a sudden increase in the cost of obtaining loans from banks. Financial analysts claim that both indicators – availability and stability of costs – show that investors and potential credit applicants in Bulgaria have nothing to worry about: In July 2008 alone, the number of issued mortgages jumped by eight percent on a year earlier, the average approved loan was 42,000 euros, a 45 percent annualised increase is expected in the number of mortgage loans in January 2007-2008 and bad debts account for only one percent of all mortgages. A mere nine percent of the applicants with primary approval changed their mind and declined a credit in 2008, compared with 18 percent in 2007. Analysts and credit brokers use these numbers as an argument against the global crunch's butterfly effect on Bulgarian banks and consequently on the property market.

What credit optimists forget is that Bulgarian banks have become much more cautious in the extension of loans to both locals and foreigners. At the end of 2007 the Bulgarian National Bank introduced a restrictive lending policy the effect of which has been that so far this year the number of applications that were denied a loan has reached one-third. As for credit costs, in 2006 it was expected that by 2009 interest rates would fall to about 5 to 5.5 percent or even lower. In fact, after a promising drop in the last five years, interest rates are going up again. Currently, the best offers are about 7.5 percent for euro-denominated loans and 7.85 for those in leva, but you should consider yourself lucky if you can get a loan at these terms. For some loans interest rates may reach up to 14 percent.

Borrowing is becoming expensive again, and this year interest rates have jumped by almost two percent, with some banks' having changed them three times already. On contract forms, the small print that states that "the bank has the right to change the contract conditions in accordance with its policy" has become many Bulgarian families' worst nightmare. The uncertainty about whether borrowers will be able to cover their monthly payments and for how long will inevitably prevent many potential applicants from purchasing a home or other type of property. So nobody will be surprised if the percentage of bad debts jumps substantially in the next few years.

The Bulgarian property market has suffered from a rather unexpected effect of the global credit crunch. This year the average Briton, who used to be the prime property buyer in Bulgaria, has been struggling with the consequences of the global economic downturn. In the first half of 2008 the number of houses repossessed because of overdue repayments has increased by 48 percent. Many Britons are under pressure from higher interest rates on their mortgages.

Increasing fuel and food prices as well as pending workforce cuts have done nothing to encourage previously enthusiastic Brits to invest abroad. Some are already selling their Bulgarian properties, while others have abandoned plans to invest in Bulgaria, not because "the bubble has burst" but because they have been forced to prioritise their spending.

The credit crunch has resulted in the loss also of another group of investors. The states which joined the EU in 2004 and which experienced property booms of their own had been bracing up to gamble on Bulgaria and Romania, the newest members. Brisk business from these countries alone could have successfully replaced the Britons and then some. Now, however, some of these states are struggling with the effects of the credit crunch themselves, while others have become cautious and are saving.

Even without the credit crunch, Bulgarian banks missed the chance to become the major factor they could have been had they chosen to encourage foreign investments. While the property boom was at its peak, they failed to meet the needs of small and medium investors. Around the world, foreign buyers are considered higher-risk clients, but Bulgarian banks failed to create a working mechanism to serve this group of applicants. So go ahead and believe the current hype that the effects of the credit crunch in Bulgaria are either secondary or limited. Just remember that while these global problems may not lead to local price drops, they may cause the market to stagnate and lose attractiveness.


    Commenting on

    Vagabond Media Ltd requires you to submit a valid email to comment on to secure that you are not a bot or a spammer. Learn more on how the company manages your personal information on our Privacy Policy. By filling the comment form you declare that you will not use for the purpose of violating the laws of the Republic of Bulgaria. When commenting on please observe some simple rules. You must avoid sexually explicit language and racist, vulgar, religiously intolerant or obscene comments aiming to insult Vagabond Media Ltd, other companies, countries, nationalities, confessions or authors of postings and/or other comments. Do not post spam. Write in English. Unsolicited commercial messages, obscene postings and personal attacks will be removed without notice. The comments will be moderated and may take some time to appear on

Add new comment

The content of this field is kept private and will not be shown publicly.

Restricted HTML

  • Allowed HTML tags: <a href hreflang> <em> <strong> <cite> <blockquote cite> <code> <ul type> <ol start type> <li> <dl> <dt> <dd> <h2 id> <h3 id> <h4 id> <h5 id> <h6 id>
  • Lines and paragraphs break automatically.
  • Web page addresses and email addresses turn into links automatically.

Discover More

Six months after the Covid-19 pandemic forced the world into lockdowns and uncertainties, a fuller picture of its effect on the world economy is beginning to emerge. Bulgaria fared not too bad, according to recent statistical data.

Nowhere is the abyss between what Boyko Borisov's GERB says it is doing and what it in fact does so obvious than in the economy of what firmly remains the EU's poorest state.

From bad to worse? According to a poll by Alpha Research published at the end of 2011, the majority of Bulgarians consider 2011 to have been "the worst" since the economic collapse of 1997.

In the third quarter of 2010 the average monthly income of an adult member of a family in Bulgaria decreased by 2.2 percent on a year earlier. At the moment it is 932 leva, or 466 euros, according to the National Statistical Institute.

The crisis was already a fact in Bulgaria at the beginning of 2009, but the owner of an accountancy firm in Gorna Oryahovitsa would deny it even more vehemently than then Prime Minister Sergey Stanishev.
Rays of hope have started to peep through the cloud-covered economic horizon – even in the new EU member states. Poland has managed to avoid going into recession.

At first, they stopped buying. Then it got worse - they started selling. Yes, it seems the British have deserted the Bulgarian property market and the Bulgarians are taking it very personally.
"The Bulgarian economy is stable." The words former Finance Minister Plamen Oresharski uttered in October 2008 seem more than just a little out of place a year later.

While last autumn the prevailing opinion of people in this country was that the economic crisis did not have a direct effect on them, their view is now completely different.

The commercial real estate market in Bulgaria is at a crossroads.
The "monster munch," as Londoners call the current credit crunch, in my view is running out steam. Everyone is growing tired of the pundits.
According to a saying very popular among Bulgarians in the past, "In his life, a man must do three things: raise a child, plant a tree and build a house for his family." Nowadays this way of thinking no longer reflects the urban lifestyle – the current rati