Peter, Friday, 8 November 2013
This article is part of a series of 8 articles about buying property in Hungary. The other articles in the series cover the following topics:
There are several options for non-Hungarian citizens to raise finance for purchasing property in Hungary. Both local and international banks
in Hungary offer mortgages for foreigners looking to buy real estate. Banks, not located in Hungary may also accept a property in their respective
country as a security for a loan, but if you want to use the property purchased in Hungary as a security, you can only apply for a Hungarian
from a bank based in Hungary. If you already have assets in Hungary, those can be used as well by raising finance against them. Another way to turn
your property in your home country into an asset, when buying a new one in Hungary, is to release equity from the property.
Most Hungarian realtors and lawyers encourage their foreign clients (especially non-EU citizens) to buy a property in a name of a company and not as
private person. Even professional services are offered to help the client setting up a company, which will formally own the property. This legal
loophole is in practice in order to help foreign citizens avoid some administrative difficulties with the Hungarian authorities. Meanwhile companies
really do get the necessary permits faster; they are about to face far less favorable mortgage options than a private person can get in Hungary.
Comparing the two options, it is safe to declare that the best mortgage deals are clearly available for the individual buyer.
Advantages of buying a property in Hungary as an individual include lower interest rates, longer terms of repayment, higher loan-to-value ratio and
being more creditable in front of the bank than a newly founded company with no financial history. In practice, interest rates are generally 2% lower
for the individual applicant, and the repayment terms could be twice as long. For example, long term loans in Hungary for individuals are up to 25-30
years, while companies are not likely to get a mortgage deal with any longer repayment terms than 10 years. Credits will be granted more easily to a
private person as well, since Hungarian banks are traditionally more cautious with business entities. The loan-to-value ratio is also more promising
for the individual buyer, generally differing between 60% and 70%, while a company applying for mortgage could count on a 50% LTV ratio. As to date,
the current maximum loan-to-value ratio in Hungary is 80% for new properties and 70% for re-sales.
Hungarian banks also offer Euro and Swiss Franc mortgages, which come with relatively lower interest rates, as compared to HUF mortgages. Interest
rates vary between 4.5% and 5.5% in case of a Swiss Franc mortgage and from 5% to 7% in case of a Euro mortgage.
There are three major banks operating in Hungary specialised in lending mortgages to purchase a property. These are the OTP Mortgage Bank, the
Unicredit Bank and the FHB. In theory, English and German speaking administration can be arranged with them.
The OTP Mortgage Bank, being member of the OTP Group, the largest Hungarian financial service provider, is traditionally the country’s No. 1 mortgage
provider. The OTP Group is also the highest rated and most trusted Hungarian credit institution in abroad with a Moody’s rating of “A2/P1”. Land
mortgage and home equity loans (in EUR and CHF) are both available.
The FHB is partially owned by the Hungarian state (53%). It focuses its attention to residential mortgages and refinancing. FHB Real Estate Ltd. is
specialized on fulfilling real estate needs and services such as consulting, real estate agency functions, valuation and expert functions. The
Unicredit Bank is a member of the HVB Group, offering both residential and commercial mortgage.
Hungarian banks are required by law to present a Total Credit Fee Index (THM) to the applicant before granting a loan. The Total Credit Fee Index
shows the full amount of money the debtor will have to pay back, including all interests and collateral costs. Another recent development in Hungary
is the increased state intervention in the financial institutions’ lending practises. Ever since the Hungarian Forint’s exchange rate started to fall
dramatically compared to Swiss Franc and Euro, leaving indebted those who have mortgages in foreign currency, the government installed laws
the banks to review the terms of repayment and to accept a state determined fixed interest rate. There is a pending moratorium which prohibits the
financial institutions to repossess the properties of insolvent debtors. As the banks try to realise the income lost because these measures, this
chain of events resulted in higher Total Credit Fees Indexes. Foreign citizens are strongly advised to check the Total Credit Fees Index. The
rates may be tempting in Hungary, especially if the loan is CHF or EUR based but some banks raised significantly their administrative costs,
in Total Credit Fee Indexes up to 40%, meanwhile there are still mortgages available with Total Credit Fee Indexes of 25% - 32%.