Factors Affecting the Value of Real Estate (Part 2)
Last time we looked at six factors affecting the value of your property in Central Eastern Europe. We continue with 9 more factors, with special focus on Slovakia and Hungary.
7. Whenever there are lower interest rates, the payments of mortgage loans are lower.
Lower payments mean higher rentability and ultimately higher income from rents. Lower payments also mean more demand among buyers, which results in an increase in value.
The current base interest rate in Hungary is 7.5%. It is 1.75% in Slovakia, just like everywhere else in the euro zone.
8. The mortgage payment cannot exceed 30% of the purchaser’s gross income.
While this ratio has somewhat changed during the past year, lending practices are likely to normalize in the coming months. Many lenders in Western Europe and America have liberally loaned out money prior to the fall of 2008. Eastern European banks on the other hand, have been very strict in evaluating the eligibility of their clients. Rigorous credit checks and proof of long-term employment were the norm. It was virtually impossible to get loans from two different banks without letting them both know and approve. This is the reason there are not that many foreclosures in Hungary or Slovakia.
Why is the payment important? Because as an investor, the higher your registered income is, the more leverage you can use. If payments are lower, more people can afford to buy homes, they will buy bigger, better homes, driving prices up. If payments suddenly rise above this ratio (because of unemployment or currency devaluation), more people are forced to sell, rent, and there are more motivated sellers, below-market-value deals on the market.
TIP: When payments are high just extend the term of the loan.
