Can a foreigner take out a mortgage in Turkey?
Legally speaking, there is no restriction on any foreigner, resident or non-resident, obtaining a mortgage on a property in Turkey.
Nor is there any restriction on the type of property concerned.
Nor is there any restriction on the interest rate that can be charged, the length of the mortgage or its other terms.
This very free and easy approach to mortgages is, however, at the moment, far from the reality. Only lending institutions (banks) based in Turkey can take mortgages over property in Turkey. This, in effect, means that you are limited to dealing with the main Turkish banks.
The various Turkish banks (most of which are, in fact, foreign-owned) have substantially different arrangements when it comes to the loan-to-value ratios they will grant (especially to a foreigner), the interest rates you will have to pay, and the fees that they will charge. This variance is far greater than in many countries.
It is often helpful if you ask your lawyer or estate agent to introduce you to a bank, as they will probably know the foibles of the various banks and bank managers in their area and be able to select a bank that will work well with you.
There are no mortgage brokers in Turkey. Banks do not pay any commission to people who introduce mortgage customers to them.
How much can I borrow on a Turkish mortgage and for how long?
Traditionally, loans to foreigners were (for residential property) at 80% loan-to-value, which was the maximum permitted by law. In other words, the bank would lend you €80,000 on a property valued at €100,000. Remember that the bank’s valuation will, most likely, be cautious and so lower than the market price. Remember, too, that the mortgage will not cover the costs (legal fees, stamp duty, Property Transfer Tax, etc.) associated with buying the property: say, 10% of the price.
So, in the real world, you might agree to buy a property for €120,000. The legal fees and taxes involved might be, say, €10,000. Total €130,000.
The bank might have valued the property, conservatively, at €100,000 and offered you a mortgage of 80% – €80,000. So, despite a headline 80% loan-to-value, you would have to find €50,000.
Total, you are likely to be offered a loan to value ratio lower than 80%, so you will have to find an even larger amount yourself.
The duration of any mortgage must be for a minimum of three years but, depending upon your age and the amount you’re borrowing, would more typically be for ten or 20 years.
All conditions and limits on mortgages, except for interest rates, are governed by the Turkish Mortgage Code and Turkey’s 2007 Mortgage Law, which is strictly enforced. Many banks, in the past, were fined for lending home buyers part of the required 20% deposit!
This means that Turkey, during the property boom of the early 2000s, did not have lenders offering mortgages at silly loan-to-value ratios or for huge lengths of time, unlike some countries.
Mortgage interest rates in Turkey
Mortgages are offered either at a variable interest rate or at a fixed rate. The detailed arrangements (including the currency in which the loan will be denominated) vary depending upon the type of buyer. See below.
Variable interest rate mortgages are not popular in Turkey. Consumers prefer fixed rate mortgages, as they can guarantee that their rates won’t go up, and they can always jump ship to another bank if rates go down.
Fixed rates are offered either for the whole duration of the mortgage or for a period of, say, five years: after which a new fixed rate would be agreed or you could convert the mortgage to a variable rate mortgage.
Fixed rate mortgages, when available, are also popular with foreign buyers.
Note that, rather confusingly, in Turkey interest rates are sometimes referred to as a “rate per month” and sometimes as a “rate per year”. Obviously, this makes a huge difference! Increasingly, rates per year are being used by the major banks.
In general terms, mortgage interest rates in Turkey have been increasing in recent years. They were around 0.7% per month in 2013, and have now reached almost 1.4% per month for a five-year loan.
Mortgages to citizens of Turkey
There is a range of mortgages available to citizens of Turkey. This includes foreign-born citizens. Typically, a Turkish person will take a mortgage over a period of ten years. Depending upon the bank they are using, and their personal circumstances, they will usually, at the moment, pay somewhere between 16% and 19% per annum interest for a mortgage denominated in Turkish lira.
Mortgages to foreigners who are resident in Turkey
Since the crash of the mid-2000s, mortgages have become more expensive. Banks also use more mechanisms for their own security, such as under-valuation of the property, better valuation experts and more stringent checks on potential customers’ solvency.
Current interest rates (Sept 17) are about 16-19% per annum APR for mortgages denominated in Turkish lira.
However, unlike many countries in the EU, the Turkish government has not been discouraging foreigners from getting mortgages. Quite the opposite, in fact: the administration puts pressure on banks to fund foreign buyers.
Real estate development is considered to have been one of the saviours of the Turkish economy during the financial crash, and it is therefore one of the most supported industries in Turkey.
One persistent problem experienced by foreigners resident in Turkey is that many of them seek mortgage finance when they have little demonstrable income. These applications will not succeed. All of the banks insist that the applicant for a mortgage must show that they have sufficient income to repay the mortgage. In making that calculation, they do not take into account any income that you might generate by renting out the property concerned.
Mortgages to foreigners who are not resident in Turkey
Unlike the case of foreigners who are resident in Turkey, only limited mortgage finance is presently (in practice) available from banks for foreigners who are not resident in Turkey.
This is getting better, but it’s unlikely that we will see plentiful mortgages, particularly with high loan-to-value ratios, in the near future.
At the moment (June 2017) a foreigner should not expect to be able to obtain a loan-to-value ratio of more than 70%. Having said that, headline offers of 75% are beginning to appear in the market.
Mortgages are all ‘full status’ mortgages. This means you produce proof of your means and ability to repay the loan, and a calculation is used to establish affordability. Your existing monthly liabilities, including your other existing mortgage commitments or rental payments, loans, credit card payments and family provision payments are taken into account, along with the likely payments under your proposed new mortgage. The total of these must, typically, not exceed 33% of your monthly gross income.
Mortgages are, typically, lent to non-resident foreigners denominated in foreign currencies: USD, EUR or GBP depending upon their nationality.
Interest rates are slightly different depending on the currency: 7-8% in GBP; 6-8% in euro, 7-8% in USD.
Mortgage interest rates can be compared online via websites such as www.hangikredi.com/kredi/konut-kredisi and individual banks announce their current rates at their own web sites and by signs at their branches. Note that mortgage interest rates are normally quoted as the monthly rate, not the annual rate.
Minimum loans are, depending upon the bank, about £50,000.
Maximum age at repayment is, typically, 70.
What types of mortgage are available in Turkey?
There is only one basic type of mortgage in Turkey. This is a repayment mortgage: a mortgage where, over the period of the mortgage, you repay both the capital and interest to the bank.
What is the process for obtaining a mortgage in Turkey?
When mortgages are available, the process is straightforward but involves quite a lot of paperwork. The person wanting to borrow makes an application to the bank. This will, often, be coordinated by your lawyer or estate agent.
Things to bear in mind:
- According to the banking law, the mortgage contract must be in the customer’s language or translated by an official (sworn) translator. At the very least, contracts in English are available from all banks in Turkey. Many other languages may also be available, depending upon the branch’s location. For example, contracts may be available in Russian at the Antalya branch or in Arabic at the Trabzon branch.
- Mortgage contracts must be signed personally. If the customer is married, the spouse must confirm his/her consent to the mortgage by signing another document.
- If you’re applying for a mortgage it is sensible to do so in good time – at least two months before you need the money and preferably three or four. Otherwise the funds may not be available when they’re needed. In theory, it can all be done in only two to three days, but it’s best not to rely on that! Nowadays, some banks speed up this process by receiving applications via online banking.
Once you have provided the necessary documentation, it takes a few hours for a credit check to be carried out. “Interim approval” is then received from the relevant department of the bank.
Once the mortgage has been approved in principle, the bank will carry out its own valuation and survey of the property to check that it is sufficient to justify the amount being lent. This takes another day or two.
Once it has received the results, the bank will confirm the mortgage offer, which will then be legally binding – provided that the title to the property is good.
The offer usually remains valid for four months.
Your lawyer will carry out the various checks needed to make sure that the property has good title and otherwise satisfies your requirements. At the same time, the bank will carry out its checks on the title. Assuming all is in order, and when you are both ready to proceed, an arrangement is made for the signing of the formal Deed of Sale (tapu) in your favour and the formal mortgage by you to the bank. See above.
The Deed of Sale and the mortgage are both signed at the same time in front of an officer at the Tapu Ofis. At the time of the signing of these documents, the bank will transfer the loan funds to the seller’s account.
Repaying your mortgage in Turkey
You will need to pay your monthly mortgage instalments to the bank from a bank account located in Turkey. You will usually open a bank account in the same bank that granted your mortgage and then feed that account by regular payments from your home country.
Although it is usual to make your mortgage payments from a bank account in Turkey, it is permissible to make the payments directly from a bank in your home country or, indeed, even in cash but neither of these is really recommended as both can create problems further down the line.
The mortgage may be repaid early, but there is usually a penalty of 1% of the loan value (if the loan is for less than 36 months) or 2% (if the loan is for more than 36 months) if you wish to do this.