Investment Property Guide: How to Secure a Mortgage in Albania

This article is a preview of our upcoming Albania Property Market Outlook, a comprehensive e-book covering everything an investor should know about buying property in Albania, including statistics, process, and getting an income from the property. Feel free to use the form in this article to sign up for Property Weekly – you’ll receive the Property Market Outlook ebook for free as soon as it’s published.

After last week’s overview of property prices in Tirana, Durres and Saranda, in this week’s preview we will focus on the process of getting a house purchase loan in Albania as a foreigner. This can be a tricky process indeed, especially if you’re used to the mortgage system in Western European or North American countries, but with our guidance, we hope you’ll be better place to take an important step to get on the Albanian property ladder.

Options To Get A Mortgage In Albania As A Foreigner

In my long experience as an expat living and working in different countries, I have found that one of the topics of both greatest interest and greatest difficulty is financing a home purchase in a host country where you often have no credit history and no local employer.

Securing a mortgage in Albania as a foreign investor can be a complex process, but with the right approach and knowledge, it is entirely achievable. The Albanian property market offers a variety of financing options, each with its own set of conditions and requirements. In this guide, we’ll explore the landscape of obtaining a mortgage to finance a property purchase in Albania, focusing on the availability of loans, terms, and essential advice for non-resident borrowers.

Availability and Challenges of Mortgage Loans

Banks in Albania, including several international institutions – the better known ones are Austrian bank Raffeisen and the Italian Intesa -, provide mortgage loans for property purchases to both residents and non-residents. Foreigners may find the process challenging, with hurdles such as higher loan-to-value (LTV) ratios and stringent bank selection crucial for success. Besides local banks, we’ll look at other financial institutions.

Mortgage Loan Terms: What to Expect

• Interest Rates: Interest rates are typically variable, set against the European benchmark EURIBOR, or the Albanian benchmark TIBOR. Interest rates are often expressed as “EURIBOR + X%”, representing the spread, or margin, that the bank will charge over what financial institutions are charged to borrow from the central banks. Taking this into account, currently (2024), mortgage rates offered typically range between 6% and, in the worst cases, 10%.
• Rates vary by lender, loan type, and borrower profile. The currency you choose to borrow in also makes a difference, with euro (EUR) denominated rates typically being lower than the Albanian lek (ALL) equivalent. However, since the euro floats freely against the Albanian lek (meaning the Albanian government chooses not to set a fixed exchange rate between euro and lek, unlike for instance the Danish, Bulgarian and Swiss governments) you may find the amount you owe the bank can increase if the euro weakens. The saga of Swiss franc loans taken in Poland is a cautionary tale of all that can go awry when borrowing in the “wrong” currency.
• Loan Duration: Loans span from 10 to 30 years, subject to the lender’s policy and the borrower’s eligibility.
• LTV Ratio: Generally, up to 70% to 80%, necessitating a down payment of 20% to 30% of the property’s value.
• Documentation: Proof of income, employment history, and a clean loan history are standard requirements, with the Bank of Albania database being a key reference point for banks.

If any of these terms are unclear, take a look at our Glossary below.

If you’re planning on purchasing property in Albania, this is a reminder to check property insurance as well.

Mortgage Requirements For Foreign Borrowers

Foreign borrowers face stricter criteria, which might include providing legal residence documentation, a larger down payment, and possibly higher interest rates. Unfortunately, there is no hard and fast rule to say what exact requirements the bank will have in your specific case. In our experience, foreign banks such as Raffeisen are generally easier to deal with, especially as – as in the case of some Albanian banks – you may get stuck right at the very first step, that is, when opening a bank account. It’s imperative to engage directly with each bank for the most current terms. You are also welcome to contact one of our property finding experts, who often have direct links into specific branches.

Negotiation Strategies

• Interest Rates and Fees: Don’t hesitate to negotiate for lower rates and fee waivers. Knowing the market rates is key to effective negotiation. You can easily research the base rate (in a nutshell, what the bank pays the central bank for borrowing money) by looking up the Albania base rate on Trading Economics.
• Life Insurance: Often required by banks, life insurance policies should cover the mortgage balance. Terms can vary, so clarify with your lender.
• Terms and Conditions: Read the mortgage agreement carefully, focusing on prepayment penalties and rate adjustments. Consulting with a financial advisor or a local lawyer can provide additional insights.
• Be Ready to Walk Away: If the terms are unsatisfactory or if you feel undue pressure, be prepared to look for better offers.

Getting Financing From A Bank In Your Home Country

While this might come across as surprising advice, seven times out of ten it is easier to borrow in your home country to purchase a property in Albania rather than to borrow in Albania directly. If you think about it, the Albanian bank does not know any of your credit history, will invariably ask for a large amount of documentation – quite a bit of which will need to be translated professionally in Albania – and doesn’t have any assets of yours that can act as a guarantee. In fact, we know of individuals who’ve been asked to leave an equal deposit with the bank as the amount they were going to borrow. Doesn’t make much sense, does it?

For these reasons, it is sometimes more sensible to borrow in your home country in order to finance your property purchase in Albania. Your home country bank will generally release equity – let you borrow against – any property you have in your home country, generally at lower rates. What you probably won’t want to do is to take a personal loan (those kinds of loans generally used to make small home renovations or buy a car) to finance your property purchase in Albania. This is because the lending rates on personal loans can be very high indeed, far higher than the going mortgage loan.

Conclusion: Plan Well And Get Good Advice

As you can understand from this overview, getting a mortgage in Albania as a foreigner is far from a paint-by-numbers process. A lot depends on your personal circumstances and how risk averse the Albanian bank is. If we had to summarise our advice in a handful of bullet points, we’d say:

1. Research lending rates carefully and compare them with what the banks are offering
2. Compare lending conditions in Albania with those of your home country when deciding where to borrow
3. Be advised by professionals. It is incredible how many people invest hundreds of thousands on a property, and think they’ll save pennies by not getting good local advice.

If you found these insights useful, good! There’s more to come. Magic Towns provides advice regarding the entire property buying process, also covering rents and yields across various regions in Albania, in our eBook, “Purchasing Property in Albania Guide.” This essential guide is indispensable for prospective property buyers in Albania. Register on this page to obtain your complimentary copy and delve deeply into the Albanian real estate market. Please register here to receive your free copy.

Glossary: Understanding Mortgage-Related Terms

When looking at mortgages in Albania, especially for foreign investors who might not be familiar with the terminology, a clear understanding of certain key terms can be invaluable.

• Mortgage: A loan specifically for purchasing property. The property itself serves as security for the loan.
• Loan-to-Value (LTV) Ratio: This term describes the size of your loan compared to the value of the property you’re buying. For example, if you’re buying a property worth €100,000 and your loan is €80,000, your LTV ratio is 80%. A lower LTV ratio usually means better loan conditions because it’s less risky for the bank.
• Interest Rate: The cost of borrowing money, expressed as a percentage of the loan. This rate determines how much you’ll pay the lender in addition to repaying the borrowed amount.
• Fixed Interest Rate: An interest rate that doesn’t change for a set period of the loan. This makes your repayments predictable.
• Variable Interest Rate: An interest rate that can change over the life of the loan. It may go up or down based on changes in the wider financial market, affecting your monthly repayments. Generally speaking, variable rates are lower than fixed rates, but the unpredictability can be hard to stomach.
• Down Payment: The portion of the property’s purchase price that you pay upfront, not financed by the mortgage. It’s typically expressed as a percentage of the total purchase price.
• Capital Gains Tax: A tax on the profit made from selling property for more than its purchase price. The tax doesn’t apply to the entire sale price, just the profit.
• Proof of Income: Documents you provide to show how much money you earn. These can include pay stubs, tax returns, or bank statements, helping lenders decide if you can afford the loan.
• Loan Term: The duration over which you agree to repay the loan. Longer terms can lower monthly payments but might increase the total interest paid over the life of the loan.
• Albanian Lek: The official currency of Albania. It is a free-floating currency (meaning it is not pegged, or “tied”, to any other currency such as the US Dollar or the euro) which is only used within the Republic of Albania. As of March 2024, 100 leka are worth about 1 euro.

Other reads

Albania Awaits: The Essential Visa and Residency Permit Guide

Albania’s Airports, Ferries and Road Links To The World (Updated 2024)

Americans in Albania: A Guide for US Expats and Retirees on Benefits, Tax and Living Costs