Mortgages and Foreign Exchange.
Investing in property in Turkey has increased in the last few years and many banks and financial institutions have adapted to this trend to the point that they now offer mortgages and second mortgages to facilitate such purchases.
It is not common for an overseas bank to give mortgages secured by the actual property in Turkey, but if you own or have equity in your own property in your home country, many banks will use that as security in order for you to finance your Turkish property.
Banks in turkey do not offer mortgages to foreign persons at this stage. But bear in mind that if this does change, the interest rates in Turkey are much lower than in most European countries, so it’s worth keeping an eye on the situation.
If you do find a foreign mortgage, make sure that it complies with the taxation laws of your home country. It would be in your best interest to consult a lawyer if considering this option.
When buying property, it is usually best to have the financing arranged prior to commencing the search. This means you will know how much you can afford, and will have the freedom to put in an offer or give a deposit when you do find the property.
Most banks will only give you a definite mortgage offer 3 months before you purchase the property. However, it is common practice to give theoretic approval of x amount, with the definite amount to be agreed upon closer to the date of purchase.
Foreign exchange markets operate 24 hours a day, 7 days a week. Different currencies go up and down according to many different factors, most of them fairly unpredictable. If you are buying a property in Turkey, chances are, you will be needing to exchange an amount of money to pay for it.
When you have exchanged money when on holiday, your 100 Euro may have bought you 180 YTL one week, and 175 YTL the next. So you lost YTL5, so what? If you are buying a property for 180,000YTL, and that exchange rate fluctuates, it could mean you save 5,000, or it could cost you 5,000.
Either way, such a large potential swing is definitely worth your consideration.
Banks view the transaction of sending exchanged money to buy a property as a one-off, and so may not offer the most competitive exchange rate, thereby covering their expenses and making a small profit. Banks also often do the exchange on the day of transfer, which makes the actual rate variable in accordance to that day’s currency market.
Ask your bank how such an exchange operates, and then have a look at other banks and financial institutions.
Another consideration is that it can take up to three months from the time you find your property to the time you settle (due to the normal process of purchase in Turkey). Or if you are buying off plan, it may be up to 18 months before the construction is finished, and during that time, the exchange rates can vary.
When you buy foreign exchange, there are usually two options, these being ‘spot’ and ‘forward’.
A ‘spot’ contract means you buy the currency immediately, for settlement within two days. This is very simple and fast and very suitable to some transactions.
A ‘forward’ contract allows you to fix an exchange rate up to 2 years in advance and no money needs to be exchanged until maturity. This option lends more certainty and clarity to the exchange, reducing the risk posed by exchange rate fluctuation.
Both of these options are fairly widely available, and have their own merits.
The most important thing is that you find out what is available, what the costs are and then decide which is right for you.
Something that may also warrant consideration is that at the moment, banks in Turkey currently offer up to 20% interest on some savings account products. This can give you the advantage of earning money while you wait for the property purchase transaction to be finalised.
If you will be living or spending a fair amount of time in Turkey, it is wise to open a local bank account. This will allow you to access funds without having to repeatedly pay international transaction fees. Most banks offer accounts in Yeni (new) Turkish Lira, as well as foreign currency, and most have internet banking facilities.