Mortgages

There are two main ways in which to secure mortgage finance for a Polish property:

• Securing a mortgage against (or refinancing) property in your country of origin and using the cash to purchase a property in Poland.
• Applying through Polish banks which specialize in lending to foreign investors. either directly or by using a specialist broker

Banks in Western Europe or the USA will generally not take the risk of lending against property in a foreign country such as Poland. They probably have limited knowledge of the Polish real estate market, and having to deal with an unfamiliar language and legal system could make the task of repossessing a property (in the event of a default on mortgage repayments) extremely difficult. Following the ‘credit crisis’ of late 2007, many banks have problems of their own with borrowers at home, so they are even less likely to consider 'riskier' markets.

Your local bank, however, should allow you to access the equity in your domestic property. Many investors choose to refinance their existing primary residence (or investment properties in their home country), enabling them to bring cash to Poland to make an investment.

The primary downside of refinancing domestic property to buy in Poland is that it reduces your borrowing capacity. You will not be securing any of the mortgage against your Polish property, thus reducing collateral which could potentially be used to borrow against.

Additionally, in order to decrease tax bills, most investors favor offsetting interest payments on their loan as an expense against income from their investment. If the loan is not secured against the property from which the income is being generated, it can be difficult to pursue this strategy, resulting in a higher tax bill.

Yes, an increasing number of Polish banks (and international banks with a presence in Poland) will lend to foreigners who wish to purchase property in Poland. The Polish mortgage market has opened up to foreign investors (particularly since EU accession in 2004), so the number of lenders, ease of borrowing, range competitiveness of products is continually improving. Foreign incomes will be taken into account by these banks when assessing potential borrowing capacity in Poland. The range of products for self-employed persons is more limited, but several banks accept such applications.

The primary benefits of taking a loan directly with a Polish bank, are as follows:

• The ability to potentially borrow more money by using the collateral of your Polish property.
• More favorable interest rates and lower set-up fees by applying directly to the banks with no credit brokers to pay.
• Being able to offset interest payments from your loan against income from the property to reduce your tax bill
• The ability to borrow in a range of currencies (EUR, GBP, PLN, CHF, USD) to either
  • Access lower interest rates of foreign currencies such as Swiss Francs (CHF)
  • Match your loan currency against your income currency. This increases transparency and reduces confusion, as well as avoiding the cost of expensive currency transfers and potentially negative exchange rate fluctuations.
• Typical Loan to Value (LTV) of up to 90%, meaning a reasonable deposit will enable you to secure a property.
• Availability of buy-to-let mortgages for investment purposes, which will take into account the income from your property in addition to your personal income.

Buy-to-let mortgages are available for foreigners seeking investment properties. The typical maximum LTV is 80%. Such mortgages are ideal for foreign investors who want to rent their property and ensure that the lender will take into account some of the rental income in addition to their personal income to assess their borrowing capacity. Again, such products are ideal for reducing personal income tax bills by offsetting interest payments against income.

Interest only mortgages are not currently available to foreign investors in Poland, though some banks will grant an interest-free period (up to 3 years) at the start of the loan term.

At present (April 2008) there has been no discernable ‘tightening’ of the mortgage offer in Poland in response to the credit crisis. When compared to mature mortgage markets in the more developed economies of Western Europe and the USA, the Polish market is still in a period of infancy. Mortgage lending is still growing from a very low base, and the type of ‘reckless’ lending to low-income earners witnessed in mature markets has not occurred here. Nevertheless, many international banks with exposure to the credit crisis do operate in Poland, and may in the future respond with a more cautious lending policy in Poland. Of course, if there is a worsening of the crisis, the Polish market will not be immune.

See www.poland-mortgage-direct.com for more details. Poland Mortgage Direct can assist investors with a free referral service to a selection of Polish banks, or a brokerage service for those applicants who need a full service due to time constraints or the complexity of their personal financial situation.