Turkish mortgage market open for business - 10th April 2007

The recent reports of reforms to Turkey’s mortgage market made for interesting reading. The implication being that mortgages will now be available in Turkey for the first time to non-residents. Whilst this is true in some respects, the reality is that mortgages have been available to foreign nationals buying property in Turkey for some time. Indeed, Conti sourced a lender in September last year to provide mortgages secured against Turkish property to help people buy property in Turkey. However, with more lenders now wakening up to the lending possibilities in Turkey this should serve to increase the number of mortgages available to consumers, which will, we hope, ultimately lead to more competitively priced deals becoming available.

This is true of other markets such as Spain and Portugal where initially mortgages were only available from a handful of lenders and mortgage deals were fairly expensive. Over the last 5 years, more and more lenders have woken up to the commercial advantages of foreign nationals buying property, not only for mortgages, but also other local banking services, and were keen to be part of this lucrative market.

Perhaps one of the biggest advantages of more lenders providing mortgages for people buying property in Turkey is that it will provide a level of protection and peace of mind for the buyer, which is very good news indeed. For example, lenders will carry out checks on the property to ensure a proper title exists and carry out a valuation to ensure the property will provide adequate security for a mortgage. This is in stark contrast to ‘cash buyers’, who usually re-mortgage their UK property in order to release equity to fund buying a property, which can often lead to them having their fingers well and truly burnt in the process.

For example, even in the short period of time since Conti started providing mortgages in Turkey, there have been a number of disturbing stories, particularly where people were hoping to make a ‘cash buy’ to secure their dream home. One homebuyer Conti saved from making a huge mistake involved a client who was about to sign on the dotted line to buy a “depot”, which is effectively a garage/storage like structure with no residential licence – and was being marketed as an Apartment. The buyer was originally a cash buyer, raising funds on his UK property, as he was unaware mortgages were available in Turkey. Being a cash buyer meant there was no lender involved to carry out the usual checks on the property to ensure proper title existed. Effectively he would have had no comeback after the sale went through and have difficulty trying to sell the property in the future, unless it was properly re-registered for residential use.

However, when Conti arranged a Turkish loan secured on the property, that was when the Turkish lender discovered the buyer was about to sign up for a “depot” worth only €30,000 in it’s current state, which was being sold for €90,000, and it was not registered as a fit structure for human habitation. Even if it was eventually re-registered as an apartment this would still only value at approx € 70,000.

Another example of where buyers can be caught unaware is with regard to how the size of the property is advertised. Some developers and sales agents deliberately play down the size of the property to avoid paying Capital Gains Tax. A recent buyer was told the property they were interested in was 80m2 when in fact it measured 120m2. Whilst this may have no immediate implications for the buyer, when they eventually sell the property in the future they will have a higher liability to Capital Gains Tax than originally first thought.

There have also been reports – similar to Spain – where properties have either been built illegally with no correct Planning Permission/Building Licences in place or built in Military Zones not available to the residential market.

No doubt the mortgage market in Turkey will continue to grow and with more lenders coming on board this can hopefully help buyers secure their dream property safe in the knowledge they have additional levels of protection compared with buying a property in cash.

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