Posted on jul 16, 2020

How Austrian Banks consider foreign investors mortgage loans

How to get a mortgage in Austria for a foreigner with European citizenship, which banks give a loan.
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How Austrian Banks consider foreign investors
mortgage loans

Among 28 EU-countries Austria is included to TOP-5, that provide most approximate loan terms for foreigners, would like to invest in its commercial or residential property. Austrian Banks offer favorable mortgage interest rate, which ranges from 2% to 4% on average, as an aside, that is more or less equalized to the conditions offered for the residents. By comparison, in Russia mortgage rate ran to 9% in December, 2019 and that was record low. At the moment, the experts forecast increase up to 10% for the 1st half of 2020. The average mortgage credit interest rate in Austria reached its minimum 1,39% in February, 2020, its maximum estimated 7,19% was notched up in 1995. The mean value for this period amounted to 3,85%.

Alongside this, the size of the loan capital in Austria starts at 25.000 Euros, what is less 50.000 Euros approved in Spain or Germany, and 75.000 Euros in France. Down payment share should cover not less than 30% of the property purchase value. Credit payment period can last up to 35 years. Summing the abovementioned outlines up, it becomes obvious, that general terms of getting mortgage in Austria appear rather affordable and appealing for non-EU residents, who aim to become a homeowner in a well-off European country.

Still, there are some pitfalls in Austrian loans system for non-residents, meaning foreigners should have their homework done to make applying for mortgage successful.

First, they must obtain special permit for property acquisition in local Land Committee (Grundverkehrskommission), indicating lawful use aims: business, residential, working. No problem occurs if you are going to use new home for permanent living (Hauptwohnsitz). When you buy property in addition to the existing residential place, for example to stay for vacations, then the procedure turns out to be more complicated. In practice, it is almost impossible to enter property ownership in resort regions, such as Tirol, Salzburg. On the other side, the Authorities are likely to give permission in less popular Lands and city districts in the outskirts. Aiming to support local business they encourage foreign investors, who acquire commercial property, and may grant EU residence permit to the buyers.

Foreigners applying for mortgage are generally considered to be at risk, that is why Austrian Banks tend to cautious assessment of non-native borrowers' profiles, checking their solvency meticulously and demanding more documentary evidence of income sources, dependents, current expenditures, etc. In other words, lenders should be certain about your ability to meet future payments in full.

It is advisable to open an account in a European Bank beforehand to make transactions from, because Austrian Banks will thoroughly check transactions from Russian Banks, that exceed 10.000 Euros and you will have to confirm your coming-ins legitimacy.

    Mortgage loan terms in Austria

    • Amount of down payment: 40% for new-built property, 50% for secondary homes. (*these are average entries.) A buyer may move in right after purchase, though the ownership entered as collateral with an encumbrance unless mortgage fully repaid.
    • No upper caps binding the loan seize
    • Taxable income that would defray mortgage expenses should be gained on the territory of Austria. If funds are derived abroad the Austrian Banks may reject credit to foreigners or raise down payment (excluding the EU and UK citizens).
    • No strict age limitations, only a borrower should be 70-75 years old when paying final installments.
    • If by the time you have already obtained real estate in Austria it can be taken as the security for the loan and in this case, there is a possibility to be deprived of down payment.
    • Fixed and adjustable interest rates. It is possible to combine two payment plans with different credit rates, for instance 60% of the loan will be paid due to fixed interest during agreed period and the rest 40% - at an adjustable 1,5% + Euribor (an offered rate, that one Euro bank lends to another one at). The benefits of a floating rate are that it is recalculated each 3 months and Euribor may drop to zero and there will be no overpay for you (but note, it can grow as well) and the loan can be paid back ahead of schedule without penalty.

    Steps of taking mortgage loan

    Before visiting the bank, an applicant should prepare a pack of documents including:

    • passport and its copy (international passport for Russian citizens);
    • copy of signed sale and purchase contract and other documents concerning property you are acquiring (master-plan, description of the building, notification from Land Register, etc.);
    • record of earnings within last 6 months for the privates, for the owners of a legal entity – acknowledgement of yield level, for self-employed entrepreneurs – gain/loss balance;
    • other confirmations of solvency, e.g. statement of the bank, where a borrower keeps savings, or signed sale contract for another real property. If a company was purposefully established for real estate purchase, subsequently it shows no significant profits, then you'll have to provide business-plans for future projects or disclose other sources of income;
    • calculation of rental yield for houses and apartments, that obtained for later-on rent;
    • valid certificates of insurance, state pension insurance certificate (if any), confirmations of clean record and absence of judgement in bankruptcy.

    All the documents must be translated into state language – German and notarized.

    The process of getting a mortgage loan with an Austrian bank looks as follows:

    1
    The 1-st interview at the bank and filling application for the loan (available on-line).
    2
    Property value assessment (market price and liquidity).
    3
    Consideration of the application with related documents normally takes 2-3 weeks.
    4
    Submitting the sales offer (Kaufanbot) and after that the sale and purchase contract in presence of a notary.
    5
    Signing of the credit agreement at the bank.
    6
    Registering the transaction at the fiscal authority and then at the Land Register.

    Expenses related to mortgage processing

    • The bank will take one-time charge 1%-2% for a loan
    • Entry of the loan conditions for property to the Land Register 1,1%-1,6%
    • Mandatory insurance of the assets from 0,01% of the value annum
    • Legal costs and administrative fees about 400 Euros
    • Some lenders may require that a borrower obtains insurance for mortgage credit. It's a kind of protection in case of force majeure circumstances, like illness or loss of job, which may prevent you from repaying the debt.
    • Property assessment may cost 0,5-0,8% of the loan, though generally it is conducted for free.
    • Depending on a bank, account management from 80 Euros a year.

    What to do if the bank rejected your application

    It is a common practice, when the Austrian banks refuse mortgages to citizens of other countries, or to those, whose income sourced not from Austria. Still, bear in mind, that they are prohibited to discriminate customers between residents of the EU basing on the nation only.

    If you suspect the bank in such an attitude, you may address the complaints office of the bank and ask for an official statement with the reasons for refusal. Besides, you may contact Financial Dispute Resolution Network (FIN-NET) for consultancy and conflict resolution. The organization is specialized in settling the disputes between financial institutions and consumers.

    Don't get upset if you get a refusal from one bank, try another one. Austrian banking system is rather flexible and exercises custom-tailored approach. If you live in a small town for long and everybody knows you over there, do not apply on-line, visit your bank personally and bad credit record may not prevent you from obtaining mortgage loan.

    Anyway, there is always an opportunity to get better conditions, collecting several offers. A lender would give European Standardised Information Sheet (ESIS), reflecting key information about mortgage terms and conditions. Basing on clearly outlined points (amount of the loan, period, interest rates, additional costs, etc.) it will be convenient to compare credit offers from different banks and select the most optimal.
    General Outlines

    1. Austrian banks offer low mortgage interest rates 2%-4%.
    2. The approval for purchase obtained from the local authorities is mandatory.
    3. Banks treat foreign investors more meticulously, than EU-residents.
    4. Advantages of floating interest rate include chance to decrease mortgage overpayments and possibility to early withdraw a credit without penalty.
    5. Financial service providers, as banks, are not permitted to discriminate customers basing on the nationality solely.
    6. Compare several credit offers to make the right choice.
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