The Bulgarian mortgage market continues to expand steadily, showing increases in lending volumes, average loan sizes, and sustained demand that exceeds available supply. Even after the Bulgarian National Bank (BNB) implemented stricter macroprudential regulations a year ago, total mortgage lending surpassed 30 billion leva over the last 12 months. The low proportion of non-performing loans underscores the system’s current stability and the market’s overall solvency.

With Bulgaria preparing for entry into the eurozone, questions arise about how inflation expectations and interest rate developments may affect property values and mortgage dynamics. Inflation tends to lift property prices due to rising construction costs and because real estate is viewed as a tangible asset that holds value better than cash. When supply cannot meet demand, housing price growth may even outpace general inflation, and rents often rise alongside inflation, maintaining real returns for landlords.

However, not all property owners benefit equally. High inflation can reduce market liquidity if higher borrowing costs deter buyers, and without corresponding income growth, real affordability declines. Owners with fixed-rate mortgages may gain some advantage, as their liabilities remain nominally constant while their property appreciates in value, though this benefit is limited once loans shift to floating rates after the initial fixed period.

Experience from other eurozone entrants indicates a short-term boost in property transactions and prices ahead of the currency switch. Bulgaria can anticipate a surge in pre-euro transactions in major cities, temporarily supporting both demand and lending. Medium-term projections suggest that, if the European Central Bank (ECB) maintains an accommodative stance, interest rates are unlikely to spike dramatically.

Three interest rate scenarios are considered: the baseline assumes moderate growth, controlled inflation, and steady rates; the high-inflation scenario could trigger faster ECB rate hikes, raising borrowing costs and curbing demand; and a low-probability shock scenario involves economic downturns or a market collapse, which would tighten lending and slow mortgage activity. Overall, the market outlook appears favorable in the short term, particularly for property owners and borrowers, though households are advised to assess their financial resilience carefully. Following the euro introduction, activity is expected to normalize, focusing on large urban centers and balancing risk, yield, and affordability.