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For Expatries

Company

Primafinance is a independent mortgage broker, working with the products of all Czech mortgage banks. We are the market leader in serving expats with Czech mortgages – through our Irish- and English-based shareholders we have been traditionally approached by expats wishing to buy real properties in the Czech Republic. We helped pioneer this area of financing working with the banks to simplify the process. We have processed close to Euro 17 million of expatriate mortgages in 2006.

Primafinance is a co-founder of the CERES Group, a group of member companies which have come together under one umbrella organisation with the intent to offer a “one-stop shop” to non-residents looking to invest in the Czech Republic (www.ceres-group.com). Thanks to this alliance we are well positioned to smoothly guide you through the complex process of property acqusition in the Czech republic.

Why to choose Primafinance over a bank

Over the years on the Czech market, we have developed extensive expertise in financial and deal structuring and overall property transaction process management
We understand the dynamics of property transactions and investments and can assist you in property negotiations
With us you will avoid hassle and troubles on your way to a Czech mortgage
Through our presence and relationships with all the Czech banks you will enjoy wider financing offers and get a better deal for your mortgage than going to the banks directly

Unlike with other mortgage brokers, with us you will get all principal services in one place

Primafinance provide:

financial advice and deal structuring
assistance in property negotiations
arranging for mortgage and development financing and related financial products
overall property transaction process management

in co-operation with other professionals, can arrange for:

property search and management
legal and technical advice
establishing of special purpose companies, accounting and tax service Call Primafinance today to find out how we can help you find and finance your new Czech property or investment.

Benefits of financing property locally

Taking a local mortgage doesn’t put your home at risk
Unlike a mortgage which would be offered by a bank in your home country, Czech mortgages are not secured against other property (collateral) which you might own- meaning that you don’t put your home at the risk of being seized should you default on payments for any reason.
Financing your property locally will significantly reduce your transaction costs
With the Czech Koruna gaining in strength year after year, taking a mortgage in the same currency in which you are purchasing allows you to reduce your foreign exchange risks currency conversion costs. This is particularly relevant with buy-to-let properties.
Czech mortgages offer competitive interest rates
Local banks have become a lot more aggressive to compete with interest rates offered by banks throughout the EU. Currently, interest rates starting at 3,3%, meaning that the value of your property will outgrow the costs of financing it.
Taking a mortgage will increase your return on investment
Purchasing a property with a mortgage, as opposed to a cash purchase, allows you to maximize your portfolio by enabling you to purchase more properties and hence increase the returns on your equity.
Mortgages are available in maturities of up to 30 years
The availability to extend your mortgage for a longer period of time will reduce your monthly mortgage repayments and hence allow you to service the mortgage more easily- something which has helped fuel buy-to-let investments in the Czech Republic.
The Czech mortgage process has simplified dramatically over the past years
As local banks are taken over by the larger foreign-owned institutions, their practices are quickly being drawn in to alignment with those of other EU countries. The result is that the process for obtaining a mortgage in the Czech Republic is very similar those of numerous EU countries.
Local mortgages are very competitive
In addition to becoming more transparent, local banks are offering better & better deals to attract and retain clients. Loans-to-value are available of up to 100% of valuation.

Buying a property

Driven by local foreign exchange regulations, which restrict foreigners from buying local properties directly
The ban on foreigners buying properties in the country directly continues even after the Czech Republic’s accession to the EU in May 2004 and is supposed to last at least next 5 years
A foreigner wishing to buy a property in the Czech Republic may buy the property
- using a local company, or
- using a special residency permit (EU citizens + several exeptions), unless
  - He or she has a permanent residency permit in the Czech Republic, or unless
  - He or she is married to a Czech citizen
The company must be established for the sole purpose of buying a property and can carry out no other business (a special purpose vehicle)
The special residency permit is only available to EU citizens with certain presence in the Czech Republic

Mortgage parameters

Executive summary

Expats may acquire Czech real estate only through a local company (standard) or through obtaining a special residency permit (for EU citizens only; less standard, available to expats with certain presence in the Czech Republic)
Mortgage financing is generally available to foreigners buying through such a local company or with such a residency permit
Usual leverage is 85% of the real estate’s purchase price (could be up to 100%)
Mortgages are fixed interest mortgages (period of fixed interest is optional) with maturities between 5 and 30 years

Mortgages generally

In every mortgage case, a mortgage bank looks for:

Suitable collateral
Privately owned property (versus cooperative or state ownership or share in a company)
Free of third-party rights
With bank appraisal of the property value supporting the size of loan (regarding valuations, see below)
Client profile
Regular and Sustainable Income
- Income from property
  - Existing income and even future income to be generated from the property to be bought
- Other income of the individual investor
  - (Self)employment income
  - Income from other properties
  - Other provable income
- Combination
- Source of income can be in the Czech Republic (preferable) or abroad
Personal creditworthiness of client
Personal assets and liabilities
Track record

Leverage

Banks lend against their valuations rather than property market prices
Banks are conservative in their appraisals, so a bank valuation may be lower than the actual price
Banks will then lend 70% to 100% of the valuation
The resulting leverage can thus range between 50% to 90% of market price; the leverage may be influenced by various factors:
- Size of the deal
- Structure of the deal
- Creditworthiness of client
Maturities, interest
- Czech banks offer fixed interest mortgages; the interest is fixed mostly for 1 or 5 years, but banks provide more flexibility (1-5 year fixes, 10, 15 year fixes)
- Only repayment mortgages
- Current rates between “from” 3.5% (1 year fix) – “from” 4 % p.a. (long-term fixes)
- Typical maturities 5 – 30 years (15 years for investment properties, i.e. Buy-to-Let properties)

Repayment

Repayment in full or partially without sanctions is possible when interest rate refixes, otherwise client pays a contractual penalty (usually equal to the interest that the bank would forgo until the end of the fixed interest rate period)
Example: Client has a 10-year mortgage; interest rate is being fixed in 1-year periods; hence, the client can repay the mortgage partially or in full every year

Structure

Mortgage funds released by banks against registration of mortgage with the relevant land registry (i.e., on closing)
Possible, however, to negotiate with the bank the release of mortgage funds on signing
It is also possible to draw a mortgage into an escrow account (especially in off-plan deals)

Duration of Mortgage process

Establishing a company
- 2 weeks to establish a new company (can be eliminated if company bought off shelf, when the purchase is a matter of days)
- 4 weeks to register the company with a commercial register (or register changes if company bought off shelf)
- 4 - 8 weeks to arrange mortgage from the date of filing to the date of signing of the transaction

Czech versus UK mortgages

Fixed versus floating interest

Czech banks offer fixed-interest mortgages only; the interest is fixed mostly for 1 or 5 years, but banks provide more flexibility (1-5 year fixes, 10, 15 year fixes)
Client can choose the fixed interest rate period when he applies for a mortgage and can change whenever interest rate re-fixes.
Repayment in full or partially without sanctions is possible when interest rate re-fixes, otherwise client pays a contractual penalty (usually equal to the interest that the bank would forgo until the end of the fixed interest rate period)
Example: Client has a 10-year mortgage; interest rate is being fixed in 1-year periods; hence, the client can repay the mortgage partially or in full every year (providing he doesnt change the period on the re-fix day).

Repayment versus Interest-Only mortgages

Only repayment mortgages (interest-only mortgages should be on offer in foreseeable future)
Current rates between “from” 3,3% (1 year fix) – “from” 4,1% p.a. (long-term fixes)
Typical maturities 5 – 30 years (20 years for investment properties, i.e. Buy-to-Let properties)

Valuation versus Sales Price

Banks lend against their valuations rather than property market prices
Banks are conservative in their appraisals, so a bank valuation may be lower than the actual sales price
Banks will then lend to 100% of the valuation
The resulting leverage can thus range rather below 100% of sales price
The leverage may be influenced by various factors:
- Property nature (location, comparativeness, luxuriousness)
- Size of the deal
- Structure of the deal
- Client’s Creditworthiness
Bank valuers tend to base their valuations on so-called “comparative price” for comparable properties in particular location; thus they usually tend to undervaluate unique projects
Only fixture is included in the valuation
Except for specific cases LTV can not be determined before the bank appraisal of the property is completed.

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