How to get a loan for your property purchase in Turkey

Turkish real estate market has been a cash market for a long time, where you can negotiate the price of the property you're going to buy. It's still the case in small towns and seaside villages where you hardly find a big branch bank. Let's check what opportunities you have if cash is not your choice.

Ok, you've decided to buy a property in Turkey, but you don't want to pay cash down. You've decided to get a loan - either so you can buy a larger property, or for easier budgeting, or even perhaps for tax efficiency if you're buying an investment property.

So, how do you secure financing for your purchase?

You have various options. For instance, you could remortgage a property you already own in your country of residence. That could be a hassle-free route, and has the advantage that the finance isn't tied to a particular transaction. You could remortgage in advance of your property search - then you can move fast when you see the right one.

But since 2007 foreigners have also been able to take out a mortgage in Turkey. That's good news, as very few banks outside the country will lend on a Turkish property.

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Steps to obtain mortgage in Turkey

Understanding the basics of Turkish mortgage

First of all, let's look at what the banks will lend you. Most lenders are prepared to go up to 70% loan-to-value - very few will lend more, and some limit loans to 65%. They also, mostly, have a minimum loan size around the $75,000 mark (it makes appr. €67,500, but you'll have to get used to prices in dollars in Turkey), though some are prepared to lend less. (That means you're looking at a property worth about €99,000.)

But there's another factor that needs to be considered. Lenders will insist on carrying out their own valuation of the property - quite right, as that's their security for the loan. Often, the bank's valuation comes in 10-15% below the market price, so in effect, you'll need to think about that too. That means you'll need to cover not just for 30% cash deposit, but also the shortfall on the valuation - you'll need 40-45% of the purchase price in cash.

A further condition of Turkish mortgages is the affordability test. Your loan payments shouldn't amount to more than 45% of your monthly income. Rental income isn't generally taken into account when calculating affordability, and potential rental income on the property being purchased is never factored into the calculation.

Interest rates are quite high compared to the eurozone or US. Currently, Turkish interest rates are running about 13%. (You may see mortgage rates as low as 0.9% being quoted - but that's a monthly interest rate, not an annual one!) A few mortgage brokers are also able to source deals from banks outside Turkey, which come in at lower rates, but you're still likely to be paying 6-7% against, say, between 2 and 4% in the UK.

Almost all loans available to foreigners are fixed rate, not variable, and they are repayment mortgages - no interest-only loans. Mortgage terms are also relatively short, with 10-15 years preferred - you won't get the 25 year mortgages you could source in, say, France.

Select your bank

Most loans to foreigners are also denominated in foreign currency, though a few lenders, like HSBC, offer Turkish lira loans.

You could go direct to one of the Turkish banks that offer mortgages to foreigners, such as Akbank, Denizbank, or Garanti BBVA. But each bank has its own preferences, and admin can be a real hassle - for instance, banks may require notarised translations of your payslips or company accounts. It may be better to use a mortgage broker, who will be able to source the best deal for you and help ensure all the paperwork is in order. (By the way, you'll need to have got your Turkish tax number before you apply. You'll need it to open a bank account, too, so it's probably one of the first bits of admin you ought to address.)

One piece of good news is that you don't need to be personally present to get your mortgage. A legal representative with a notarised power of attorney can represent you.

It's best not to wait to apply until you have found the property you want, but instead, get pre-approval early in your property search process. Once you've assessed your budget and the type of property you're looking for, you can start talking about finance. Once you've secured an in-principle commitment, you're in a much better position. You won't get held up by paperwork, and you can move quickly to snap up a bargain or make sure you get the keys to your dream home.

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Other options when mortgage is not available

However, a mortgage isn't your only financing option in Turkey. Because traditionally Turkey was a cash real estate market, with limited financing options - and because foreigners couldn't access funding till 2007 - many developers offer structured payment plans. They're not quite as long term as mortgages, but will let you pay the purchase price over 5 years, spreading your payments to lessen the one-off impact on your bank account or give you time to reshuffle your investment portfolio. Unlike mortgages, developers don't charge interest.

If you're buying in a major resort area, or in one of the big cities, you'll find both options on offer. If, on the other hand, you want to buy an old house out in the sticks, you probably won't be able to find financing - but then again, prices are so low you probably won't need to!