Banks can and do lend to foreigners as well. However, the conditions are stricter compared to local nationals and are internally set by each bank. It is not uncommon for a foreigner’s mortgage application to be rejected by their own bank but approved by another one. It is therefore essential to choose the right bank. However, going from door to door is not a good solution. Each rejected mortgage/loan application is negatively reflected in the loan register and decreases the applicant’s creditworthiness for a period of five years from the rejection.
Apart from the parameters mentioned in previous article, the following parameters have a particular impact on whether a foreigner’s mortgage application is approved (click to open each part):
Country of origin and permanent residence
Each bank examines the country of origin and the current permanent residence of the applicant. The applicant most likely to get a mortgage from a Slovak bank is an EU resident with permanent residence in Slovakia. All other categories are assessed by banks individually (including, for example, nationals with temporary residence in Slovakia). For nationals of high-risk countries (in accordance with the EU Directive on anti-money laundering and terrorist financing) it is almost impossible to get a mortgage in Slovakia. These include countries such as Afghanistan, Bosnia and Herzegovina, Guyana, Iraq, Lao People’s Democratic Republic, Syria, Uganda, Vanuatu, Yemen, Iran and Democratic People’s Republic of Korea (DPRK).
In some banks, the duration of permanent residence in Slovakia also influences whether the mortgage applicant is required to submit an extract from the loan register of their country of origin or not.
Which country the loan applicant’s income is paid from
Whether the applicant receives their income from Slovakia or from abroad is an important parameter which the bank examines in case of Slovak nationals as well. Some banks strictly do not accept income from countries outside the euro area, other banks accept income only from EU countries or from countries such as the USA, Canada or Australia. The applicant in the most favourable position is an employee of a Slovak company, as the bank is able to verify their income and parameters in the Social Insurance Company. Vice versa, if the applicant’s income comes from a country outside the EU, their chances of getting a mortgage are almost non-existent. .
The ideal mortgage applicant is an employee of a Slovak company which operates in a low-risk sector and achieves stable economic results, employing applicant in form of a permanent employment relationship. The bank can verify the employee via the Social Insurance Company (source of income, income amount, duration of employment etc.) and verify the employer via available registers (e. g. Finstat etc.). If a foreign mortgage applicant is employed, banks tend to be stricter regarding the minimum duration of employment required (e. g. 12 months as opposed to 6 months for an applicant who is a Slovak national).
Entrepreneurs are generally in a less favourable position compared to employees, even if they conduct their business under the corporate form of the Slovak self-employment status (“živnosť”) or a limited company (“s. r. o.”). The worst combination for a mortgage applicant is income from entrepreneurial activity in form of a foreign body (for example, self-employment status in the Netherlands). Foreigners with income from foreign entrepreneurial activities may as well save themselves the journey to the bank. You can find more information about mortgage for SZČO (self-employed) in this article.
Co-applicant (future co-debtor)
After the mortgage has been approved, the co-applicant automatically appears in the loan agreement as the co-debtor. If the main debtor fails to repay the debt, the co-debtor is obliged to repay the full amount of the loan (i. e. not only one half or a part of it). Therefore, existence of a co-debtor (or a guarantor) means that the bank is at a lower risk of not having the loaned money repaid and is more willing to approve the loan applied for. In practice, the bank may reject a mortgage application of a single foreign national working in Slovakia, but a married foreign national with an employed (creditworthy) spouse may have their mortgage application approved without any problems.
Apart from the limitations and/or parameters listed above which are taken into consideration and verified by banks in different ways when processing mortgage applications from foreigners, the most frequent limitation lies in the LTV ratio. Banks commonly apply a threshold to the maximum loan amount as low as 70 % to 80 % of the property value (instead of the standard 90 %) in relation to such applications. Some banks also limit the purpose of the mortgage solely to purchasing or refinancing.
It is also not uncommon for banks to come up with further additional requirements during the approval process, such as requirement of a life insurance (cross-sell) or making mortgage lending conditional on registration of the security right instead of solely marking a seal on the title deed.
A foreigner is likely to face substantial challenges when applying for a mortgage from a Slovak bank, but it is not impossible. If you are currently dealing with this matter or plan to do so in the future, I would be happy to help. I have an expert knowledge of banking and know how banks approach mortgage applications from foreign applicants. I am able facilitate the whole process free of charge. In case you are interested, leave your contact below and I will come back to you
