Why do Bulgarians buy properties with cash – why are mortgages less common?

Out of every 100 transactions, only 27 are made with a mortgage loan. Is Bulgaria a poor country?

In the past year 2024, the real estate market in Bulgaria experienced a significant growth – prices increased by around 16 percent, and the number of transactions also showed an upward trend. Yordan Yordanov, managing director of the real estate agency “New Home 1”, shares: “The growth in prices and sales volume indicates that the interest in real estate remains stable, and the trends observed in the past year will continue into the present one.”

What role do banks play?

A feature of the Bulgarian market is that the influence of banks is more limited compared to Western Europe. According to the Bulgarian National Bank, interest rates on housing loans in Bulgaria are among the lowest in Europe, ranging between 2.1% and 3.6%.

“According to official data, in the last 10 years, out of every 100 transactions in our country, only 27 were made with a mortgage loan, while the rest were made with cash, indicating the unique structure of our market,” commented Yordanov. Unlike Bulgaria, in countries like Germany, England, the USA, Canada, and others, between 80% and 90% of transactions are made with credit. This trend persists despite the record growth in mortgage loans in recent years.

He specifies that in Sofia even the obtaining of a mortgage loan has increased to around 30 out of 100 deals, while in Varna this share has decreased. “People in Bulgaria keep more cash, which is partly due to the shadow economy and the presence of hidden incomes that distort official statistics,” he adds.

The stable banking system, low interest rates, and low unemployment are considered positive factors for the market.

“Investing in real estate remains one of the most stable options for generating profit. Bulgaria is very suitable for such investments – we are like an oasis amidst the migration crisis in Europe, with well-intentioned people and low serious crime rates,” commented Yordanov.

At the same time, according to him, the problem is that a significant part of the population lacks sufficient financial literacy and do not know how to manage their money optimally. This can hinder the development of the market, especially when it comes to more complex financial instruments.

Sofia versus Varna

Yordanov emphasizes that in Sofia the procedures for issuing permits are significantly faster if the documents from the investors are compliant with the law. He explains that the city does not have serious infrastructure-related issues, which contributes to a more dynamic development of construction.

In contrast, Varna faces a number of challenges: “The municipality in Varna finds it difficult to make changes in detailed development plans – this sends a bad signal to investors. Additionally, the lack of sufficient energy capacity and infrastructure problems, such as the lack of roads and sewage systems, hinder development,” he says.

The demand for properties in Varna remains very high, but the weak supply leads to exorbitant prices. “The psychological barrier of 250,000 euros for a property is still a heavy threshold, and the price per square meter varies depending on the area and stage of construction – the average values ​​range between 1500 and 1800 euros,” Yordanov adds. He also notes that both in Sofia and in Varna, green deals are actively taking place.

What to expect from the year 2025?

For the current year, Yordan Yordanov predicts that the market will continue to grow by another 5-10 percent. This growth is expected to be supported by overall economic stability, but also by factors such as increased interest from foreign investors, especially after Bulgaria’s potential entry into the eurozone. The only serious risk, according to Yordanov, would be a collapse in the economies of Western Europe, which could limit foreign investments.

An additional factor that may influence property prices and construction costs is the recovery of Ukraine after the end of the war. A huge exchange of construction resources for the country’s reconstruction is expected, which will lead to an increase in construction material prices across Europe, including Bulgaria. This raises the question – is now the best time to buy property before these changes affect the market?