FAQ for Mortgage Applicants
1. Is it legal for me to buy in the Czech Republic?
Answer: YES
It is legal providing you follow the right procedures. Until 1st May 2009, most buyers have to obtain a Residence Permit (“EU Card”) first, or form a company there and own the property through the company. These processes are straightforward but can take several weeks, so start them promptly. You may not have to do either of these if you are married to a Czech person or inheriting. The need for a Residence Permit should disappear completely for most applicants, in 2009. If you are American or non-EU, it is harder to obtain a Residence Permit, but sometimes you can proceed with a 90-day visa.
2. Is it complicated to buy a property?
Answer: Use an experienced lawyer who understands the service you want
It isn’t complicated in the legal sense, but there are a lot of forms to complete and queues which you might have to stand in. A Czech lawyer can guide you through this and do a lot of it for you – though some do not, so check the extent of the services your lawyer intends giving you! If you want to talk it through with us, phone us – we have done it ourselves and guided clients through it many times. If you cannot find a lawyer who will provide you with a complete service, ask us for recommendations or direct help.
3. Can I get a mortgage to help me buy a property in the Czech Republic?
Answer: YES
Most UK investors use a mortgage to help them buy their property in the Czech Republic. Until 2004, the majority of the British buyers there bought with cash, but mortgages for “foreigners” are much more commonplace now.
4. Can I get the mortgage from a Czech bank? Are there many of them?
Answer: YES
There are more than a dozen well-known banks in the Czech Republic and also the Czech equivalent of building societies. “Foreigners” (British, Irish, Dutch, American etc) generally get their best terms from a smaller handful of these – about half a dozen banks at this point. The mortgages are usually “capital repayment plus interest” mortgages. Anybody can apply for a mortgage if over the age of 18. The banks sometimes offer significantly different terms from each other, so it is important to find these out first, then match yourself to the bank which is best for you. Czech Finance will help you do this.
5. Is it easy to get a mortgage in the Czech Republic?
Answer: YES with professional help
If you have an income, the banks will be interested. However, procedures are bureaucratic and an application involves showing them your proof of income, payslips, tax returns and the like. Czech Finance will guide you through this. Unlike in the UK, the banks also want to know how much you currently spend, since they calculate what they might lend you based on what you can afford, rather than on your headline income.
6. Can I get a mortgage from a British bank?
Answer: PERHAPS
A lot of people prefer to borrow in the UK, but a British bank will only lend you the money if it is secured against a UK property. If you have spare equity in your UK property, you can re-mortgage to use that money to buy in the Czech Republic. If you have no spare equity in your UK property, you won’t be able to raise a mortgage in the UK for use in the Czech Republic. If you need guidance for re-mortgaging in the UK, ask us.
7. What sort of LTV% is available & what’s the interest rate?
Answer: 100% LTV, interest rate 5.3% - 7.0%
Czech mortgage products stretch all the way up to 100% Loan-To-Value if that’s what you want – but check that your seller will be content to do business with you if you are proposing not to put down a deposit. 75%, 85% or 90% LTV mortgages are the most common – but these terms change from bank to bank. The interest rates are usually quoted for a 1, 3 or 5 year fix period. The interest rate for a 1-year fix or a 3-year fix is sometimes fractionally lower than for a 5-year fix, depending on your financial profile. Longer-still fix periods have a fractionally higher rate. It is usual to get your Czech mortgage denominated in Czech Crowns - not Euros, Sterling or Dollars. Early redemption charges are usually in the range 5% - 10% but can vary from 2% to 26%, so ask us for advice from the outset; with some forethought, they can also be nil.
8. What are the costs?
Answer: Approx 2% of the loan
The bank will charge you an application fee, which may be a fixed amount or may depend on the size of the loan, but can be as much as CZK 30,000 (near to £1,000 or €1,100). We can sometimes negotiate to get this fee reduced or completely waived for you. There are other payments which you may have to make, e.g. a valuation survey which is sometimes free but can be £150 - £250; again, we try to minimise this and can sometimes completely avoid this fee for you too. Fees charged by Czech Finance will be shown clearly on the free Quote we give you first – make sure you give us enough information to provide you with a free Quote! Some people call these a “Decision In Principle” or an “Agreement In Principle” because they are issued after you have passed a bank’s pre-score. They therefore have a very high degree of reliability. The quote and our telephone advice and guidance are all free. Most of your papers will be received by us in the UK, then flown to the Czech Republic as hand luggage with our own staff during regular flights. Although we rarely use physical postal services, when we do some clients ask us to use couriers such as DHL for extra protection of their documents in the post – in this case, we’ll ask you to foot the bill since it can be a disproportionate cost. All this often adds up to around 2% of a typical loan.
9. How long does it take?
Answer: Allow 2+ MONTHS
Once the Czech bank has your application form and all the documentation it needs to satisfy itself that the property is secure title to lend against, and that you can afford the mortgage repayments, it usually makes an offer within 5 working days. Applicants can get caught out though, by the amount and completeness of the documents they have to provide to satisfy the bank. Although Czech Finance will guide you, it’s best to be responsive to emails and allow yourself plenty of time to gather the documents together; ideally, around 2 months. Requests for “extra” documents can occur, in which case its best to be accepting of the request and understand that things are simply different there. After receiving and signing the Mortgage Offer, the applicant has to satisfy various drawdown conditions before the funds are released. These often take at least 2 weeks, sometimes a month to satisfy.
10. How do I MINIMISE my monthly repayments to improve my break-even rental calculation or BTL business case?
Answer: Get a long “term”
The “term” of your mortgage is its duration – the number of years it lasts. Since you pay back the amount you’ve borrowed over this term, you have to pay a lot more each month if the term is short. Paying back a loan over 30 years involves a smaller repayment each month, than paying it back over 10 years. If the term is long, your repayments each month are less. The effect of a short or long term is usually much more significant to your monthly repayments, than the interest rate. Older clients may not be able to get a 30-year term, but can sometimes add a younger person to their application and agree a good compromise with the bank.
Of course, the amount you borrow makes a big difference and the interest rate also makes a difference, especially over the lifetime cost of the mortgage (which increases if the term increases). The other things to consider are the bank’s fees and charges, including the Early Redemption Charge. All these things vary greatly from bank to bank.
11. Will I be able to get a mortgage with my friend/brother, who doesn’t work?
Answer: YES
Yes, this is not an unusual request. There is often a maximum to the number of co-applicants allowed, usually 4. If one of the co-applicants has no income, their financial and living costs may still form part of the affordability calculation – so their net impact may be to reduce the amount the group of you could afford together. On the other hand, it can be useful to involve a friend who does have some income, in order to get a better mortgage offer than you could get by yourself. Even if you have already exchanged contracts, your lawyer can often arrange for last-minute changes. Also refer to Question 16 below.
“Extra” names on the mortgage need to be known at the time of application – it is much more difficult to try to add them in later and it may be necessary to start again. So think about it early and don’t forget to tell us!
12. Will I be able to get a mortgage based on the rent the property will generate?
Answer: Rental income HELPS
The British or American type of BTL mortgage does not yet exist in the Czech Republic for use by “foreigners”, though it may in the future. Existing rentals or future rentals may be taken into account, but differently by different banks and not in the same way as in the UK. A rental income will help your mortgage application.
13. Does it make any difference that I am self-employed?
Answer: NO
However, it reduces your choice of banks. Most Czech banks will lend you just as much if you have been self-employed for 2 complete tax years or more. They will check your income details thoroughly, so be ready to provide the documents they want. Czech Finance will guide you through this. People who pay themselves in dividends should specifically say so, since there are particular banks to match you to.
14. Does it matter that I have a portfolio of rented properties in the UK already?
Answer: YES
Yes, and the UK rents will help your Czech mortgage application. If you have multiple UK mortgages though, the monthly debt repayments count against your Czech mortgage affordability calculation. Most Czech banks balance the rentals and the mortgage costs of an existing investment portfolio in a harsher way than UK banks – especially during the credit crunch, so enquire directly to Czech Finance with your details, before assuming your mortgage will work. Nearly three-quarters of our applications are submitted on behalf of portfolio landlords, so we are used to the issues the banks need help with.
15. Does it matter if I don’t own any property nor have any UK mortgage?
Answer: It HELPS
This will count in your favour, since you have no monthly mortgage debt repayment to count against you in the pre-scoring. If you pay rent in the UK, you may have to declare that to the bank. Some people buy property in the Czech Republic as their first step on to the housing ladder, since it can be a more affordable step than in the UK.
16. Does it make any difference that I am approaching retirement?
Answer: YES
Yes, because there is a maximum age by which you have to make your last mortgage repayment. If you have, say 10 years to go before your retirement age, then you can only get a mortgage over a 10-year term. This means higher repayments to pay off the capital than there would be for the same mortgage over say, 20 years. The good news is that the maximum age limits vary from bank to bank and are in general better than in other countries – so it’s a case of steering your application to the most appropriate bank. It is possible with some banks, to add a younger person to the application. Their younger age will lengthen the term you get and thus reduce the monthly repayments – in turn increasing the maximum you can borrow.
17. I don’t have much income, but I have a lot of assets – will that matter?
Answer: YES
Whoops! Czech mortgages are generally justified against income, not assets. Self-certified finance exists but at a lower LTV% and it is expensive. The general attitude of Czech banks is that you should buy your property with cash, if you have a lot of assets. If you are planning to ask for a mortgage, the banks need to understand what income the repayments will come from. So, speak to Czech Finance before assuming your Czech mortgage will be possible.
18. I earn a lot of money, but don’t have much documented proof of it – is that ok?
Answer: CHECK with us
Talk it through – at least this is better than not earning the money at all! But remember banks are risk-averse institutions, which like to see hard evidence of your ability to make repayments. Czech banks can be much tighter on this sort of thing, than British banks. They need to feel very sure that can afford the monthly repayments despite any adverse movements in the economy, for example.
19. I’m British, but I reside in a different country for tax purposes – is this ok?
Answer: YES
Yes, this is ok, providing the bank can be reassured that your income after tax, has been calculated correctly by the mortgage broker, and you can show that you don’t owe anything to tax authorities in any relevant country.
20. How do I arrange mortgage-related insurance, a valuation survey, a solicitor, or open a bank account in the Czech Republic?
Answer: HELP from us
Phone us. Czech Finance gets asked to help with such things very often.
21. Will I have to go there?
Answer: ASSUME you will
If you buy in the name of a Czech company you own, you can sometimes use your Czech lawyer under Power Of Attorney to avoid travelling to the Czech Republic. Your Czech lawyer can do nearly everything for you, or you can sign papers in the Czech embassy local to the country where you live. If you buy in your own name (with or without a Residence Permit), you will have to travel to the Czech Republic to collect some documents in person. Most people find they visit the Czech Republic more often than expected during the pre- and post-buying process – not only for signatures, but to measure up, buy curtains, choose kitchens etc. Buyers who visit the Czech Republic usually get a better feel for the housing and rental market and consequently, how their investment might perform. Some banks might want to interview you, so tell us whether you want to visit the country or not, before we match you to a bank.
22. What’s the rental market like?
Answer: LARGE & active
Renting is more common in the Czech Republic than in the UK, so it’s a “real” market in that sense in large towns and cities, determined by supply and demand. Rental yields can be very good in some places. Prague has calmed down recently in terms of rental yield, probably because more new apartments have become available. General opinion is that Prague will perform strongly again over the medium term, then overtake the returns that other Czech cities can offer. If you need contacts for rental management agencies, ask us.
23. Can I use cash to buy the property, then mortgage it afterwards?
Answer: YES, but be careful
You can, but apply for the mortgage during the first year of ownership so that the bank sees it as a linked transaction, rather than an indication of financial distress. There may also be a smaller pool of mortgage products to select from because the banks don’t encourage it. Occasionally your mortgage might be limited to a maximum amount or offered at a higher interest rate. Get our advice before you assume this will be ok, because although several banks advertise that they provide mortgages on this basis, there can be reluctance to provide the offer you might expect. However, an advantage of mortgaging after completion is that you can find a tenant for the property before applying for the mortgage – a real rent is smiled upon more happily than a “future” rent.
24. Are there any tax implications in my choice of either buying in the name of a Czech company, or in my own name using a Residence Permit?
Answer: YES
Yes, there are several. Competent advice on this is not easy to come by, but you should be aware that costs to offset against income tax will be different, property sales tax could be different, VAT could be different and Capital Gains Tax could be different. We are not international tax accountants; ask us what we think if you want to, because we deal with these questions a lot and have faced them personally – but ultimately, we too have to take advice from professionals on these same issues and rarely is any one set of advice good enough to be taken as the “final” answer. We doubt whether any UK buyer in the Czech Republic has ever had to pay more tax than would have been paid in the UK – so if you have no professional advisor yet, just keep in mind that you should pay the same or less tax, after all the calculations have been done.
25. Who CAN’T get a Czech mortgage?
- People with insufficient income
- People with unusually high monthly repayments
- People over 64 years old, unless they include a younger co-applicant
- People who have been self-employed for less than 2 years
- People who fail for any other reason, according to the pre-scoring spreadsheet being used by the bank they are being matched to
- People who have no documents to show
26. Is there any risk that Czech Finance could give me a Quote or D.I.P., but then I still can’t get a mortgage?
Answer: A small risk
Our pre-scoring is very reliable, because we only want to work on applications which are likely to succeed and therefore we pre-score all applicants on the banks’ own spreadsheets. But a small risk of failure does exist, arising from sources such as:
- Your personal financial circumstances changing after we have quoted you but before you contract with the bank. For example, your salary or debt. As well as this, some clients provide incorrect or approximate information for us to pre-score them. The accurate information they provide later, may then give a different pre-scoring result.
- The economic or mortgage terms and conditions changing after we have quoted you but before you contract with the bank. For example, interest rates or currency exchange rates both fluctuate beyond our control.
- An unanticipated event late in the process. For example, a negative credit report, or perhaps a medical disclosure, which might make any mortgage-related life insurance difficult. To minimise this, we try where possible to use banks which do not require credit reports or life insurance.
27. If I eventually can’t get a mortgage, will Czech Finance give me my money back?
You will only have risked the first payment shown on your free Quote, which covers the time we spend administrating the early stages of your application process. However, you will rarely have paid any other fees before completing, so that money is never at risk – it stays in your pocket until you’ve got what you want. Most of the larger fees, if not waived completely, become due only after you have your Mortgage Offer or on completion. This means that you know we, the bank and other agents you instruct are working for a successful outcome, not just being paid for accepting your instruction. NB: The disbursements allowance which clients can lodge with us, is often not depleted at all until later in the process, so many applicants would get it returned in full.
28. What’s happening in the Credit Crunch?
Fewer Czech banks are offering high-LTV products to Irish and UK “foreigners” than they used to, but they are still available. Interest rates amongst the High Street banks have not reduced in line with the Central Bank rates, although the general expectation is that lower rates will be offered later in the year. Property price inflation has slowed in Prague, but across the country is still neutral/positive – possibly because Czechs have felt the world economic downturn more mildly.
29. #$§Ǿ♫!!! But I want a mortgage in Slovakia or Turkey, not the Czech Republic! What do I do?
Oh! Take a look at the tab for Slovakia or Turkey! Or email us!
30. How competent are the staff at Czech Finance?
All staff here, including the Czechs, Slovaks and Turks, sit the UK’s FSA-approved qualification “Certificate in Mortgage Advice and Practice”. By chance, it is also true that all staff here own property themselves in the Czech Republic, and additionally either have a mortgage themselves there, have worked in the industry there, or both. All of us have been trained personally by the Czech and Slovak banks.
