Bulgaria has started experiencing the first effects of the credit crunch in the sector that many considered to have been the driving force behind the country’s recent economic boom: real estate.

The downside is particularly felt in the mortgage segment where, according to loan consultancy firm CreditCentre, many people have been caught in a no man’s land with little chance of reaching solid ground.

CreditCentre’s February market report, released on March 9, said that people who had made a down payment on the purchase of a property without securing a bank loan were most likely to lose their money.

The reason is the rapid, almost daily, changes in banks’ lending terms because of market uncertainty and banks’ desire to avoid "toxic" mortgages.

"Overall the number of mortgages continued to drop in February despite many clients’ desire to apply for one," CreditCentre analysts said. "The problem is that many people do not meet banks’ new terms."

In February, eight per cent of those who applied for loans fell into this category.

"Such clients have made a down payment on a property but then realised that they no longer met banks’ new requirements. In this situation, clients have two options: to borrow money from somewhere or to drop the deal," CreditCentre said.

Withdrawing from a deal usually means a financial loss for the would-be buyer. Analysts advise: "Don’t make a down payment on a property before getting the bank’s approval."  
Inevitably, this has affected investors as well.

"Eleven per cent of people who have applied for a loan in February have already paid between 30 and 70 per cent of the property cost. Now, however, with banks’ new terms they have no other option but to negotiate with the construction company for postponement of the final payment," CreditCenter said.

"At the moment developers prefer to agree on such a postponement in order to close the deal."

The result is that the mortgage sector in February has more or less been at a standstill. CreditCentre data show that 67 per cent of their clients were "just looking".

"They look at what the market is offering but do not do anything," the company said. "More than 50 per cent of them are planning to wait for a year before making a purchase because they think that by that time the market will change."

The most active players on the market in February were those with fresh money who had taken advantage of the drop in prices because of decreased demand.

"Such people account for 14 per cent of all deals in February, " CreditCenter said.

February has shown another change in the market profile. People aged between 36 and 45 years of age have become the most active part on the market simply because they have had more time to accumulate savings. They account for 54.29 per cent of all mortgage loans in February.

The second most active part of the population were people aged between 26 and 35 with 28.57 per cent of loans. People aged between 18 and 25 have been absent from the market, which is no surprise given that the average age at which people graduate from university in Bulgaria is 25.