by Quest Bulgaria

As property prices are rising in Bulgaria, buyers are increasingly finding that their piggy banks, war chests and bank accounts no longer contain enough cash to buy outright, and hence the need to raise money to allow a purchase is increasing.

You basically have two options: raise money in the UK or raise it abroad. For the purpose of this article we shall concentrate solely on raising money via a re-mortgage of a UK property, as well as giving some general advice on the re-mortgage process.

Re-mortgage considerations

Re-mortgaging, in other words, raising capital by releasing the equity in your UK property can prove useful for buying your place in Bulgaria.

These are a few pointers to help: Timescale - it can take up to 3 months to arrange a re-mortgage. Some lenders are slow, valuers can be fully booked and solicitors can sometimes appear to have two speeds (stop and reverse!). We recommend discussing your re-mortgage 3 months before you want to complete, to make sure that everything is done in good time.

Exit Penalties - How much will your existing lender charge you for leaving them, make sure you call your lender and check.

Early repayment charge - this is a penalty that will usually expire after a certain period of time, make sure you don't complete the re-mortgage before this date unless absolutely necessary.

Deed release fee - this is a charge for releasing your deeds, lenders have been increasing these over recent years. It can range from GBP50 to over GBP300.

Interest - some lenders may charge interest for the entire year/month and may not refund over-payments to you if you leave early.

Fees - How much will the new lender charge for arranging the mortgage? Fees could include:
- Valuation fee - a fee charged for valuing the property, it is unlikely that the lender will send you a copy of the report and often the valuation is desk-based or a drive-by. This fee is usually not charged or paid by the lender on re-mortgages.
- Arrangement fee - it is becoming more common for lenders to charge an arrangement fee for re-mortgaging (especially if you want a fixed rate). Again, deals are available without this charge.
- Booking fee - A charge from the lender for booking the product, paid in advance and often not refunded if you fail to complete the mortgage.
- Other fees - It is also possible for 'higher lending charges' to be charged, depending on loan to value. This can be a high amount and you need to be absolutely certain if this will be charged or not.

When looking at fees, it is important to remember that, even if a fee is 'added to the loan', you need to take it into account. In fact, fees that are added will cost more over the period of the mortgage as interest will be charged on the amount.

Your New Deal

Make sure you fully understand your new mortgage. Are you able to overpay, is the rate fixed or variable (and, if variable, how much could it go up if rates increase?), and are you tied in? You need to pay special attention to make sure you understand whether you are 'tied in' after any initial deal, and whether the deal is 'stepped' and will increase by set amounts in the future. What initially looked like a great deal may have a nasty surprise!

Do you have any other outstanding debts? In certain circumstances it is worthwhile consolidating all or some of your debts when re-mortgaging. However, there are certain things you need to think about: - A mortgage is a secured loan - if you add unsecured debts such as personal loans and credit cards to your mortgage you are effectively offering your property as security against these debts. This often allows you to get a better rate, but you must understand the implication of securing them against your property. - Short-term debt v long-term debt - you may well reduce your monthly outgoings, but changing a 2 year loan to a 25 year mortgage may well result in you paying significantly more interest over the term of the mortgage.

If you are intending to consolidate debts and reduce your monthly outgoings, then it may be wise to:

Overpay on your monthly mortgage payments and therefore pay it off earlier Destroy your credit cards and try not to take out any more loans etc unless absolutely necessary. Borrowing to go on holiday may seem like a good idea before you go but paying it back when your tan has faded is less appealing.

When you arrange a re-mortgage solicitors need to ensure that everything is legal and above board. You may need to pay legal fees. Even if you opt for a mortgage with 'free legals' be aware that you may need to pay for the transfer of funds and any additional services (eg. adding someone else to the mortgage).

Remember the 'free legals' companies are not charging much to the lender and therefore their service can sometimes be poor. As a rule, if everything goes through smoothly, then you should be fine but, if any problems occur, you may struggle to speak to the solicitor or have your calls returned. You may wish to look for a deal where you can instruct your own solicitors and hopefully get a better standard of service.

It is your responsibility to make sure the mortgage does not complete before any redemption penalty expires. There have been occasions when solicitors complete a day before the penalty expires!

Alternatives

There are alternatives to re-mortgaging and these should be considered if necessary. If you are possibly going to incur a large penalty for switching to another lender then it is worth considering EITHER a further advance from your current lender OR a second mortgage on the property from a different lender. With these options you should ensure you are not 'tied in' for longer than the main mortgage, so that you can re-mortgage without penalties, when the penalties expire on your current deal.

reproduced by kind permission of Quest Bulgaria Magazine

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