Mortgages Changes: Added Hurdle

[Proactive]

Hi there , new to this forum, to introduce myself I run a company called ProACT Partnership (google it) which deals with expatriate issues such as investments, tax, wills, immigration and more importantly; property! Just thought id kick off with an article on the recent mortgages changes from our Cyprus Living Abroad Blog.

The central Bank of Cyprus has always exerted tight control over lending in Cyprus in an effort to control the levels of debt and money supply. This is a throw back to exchange controls and the closed economy that operated in the country up to joining the EU in 2004. The mentality remains.


The Cyprus Central Bank have issued a directive to Cypriot banks to tighten and restrict mortgage lending by the local banks in an effort to cool inflation in the local property market. The margin for mortgage lending has been reduced to 60% LTV (Loan to Value) meaning buyers using a mortgage must invest at least 40% of new capital.


Valuations Reduced

Further they are tightening up on the Cyprus banks using inflated valuations of property (villas and apartements) when settling on the mortgage to make - especially for overseas property buyers and expatriates. The banks are now required to get a number of valuations and use the forced sale (i.e. lowest estimated) valuation as the basis of lending.



The only relief is that first time buyers in Cyprus will still be able to make 80% LTV mortgages however the banks have been ‘discouraged’ from offering this facility to non-resident expatriates from the EU and elsewhere.. If they tried to make this a rule this would be illegal under EU discrimination rules.



Lower Demand

These measures will reduce demand and sales of new villas and apartments but the benefits for Cypriots will be mixed. While property prices may not rise so quickly they are unlikely to fall back by significant levels. Meanwhile it makes Cypriot property investment less competitive in the international market. It is the international investors that bring new capital, wealth, spending and jobs to Cypriots. The measures will only contribute to the financial pressures the small medium sized developers in Cyprus are under.



In part these measures could be a defensive measure to protect the Cyprus currency and banking system from international competition once they join the Euro in 2008. All the local Cypriot banks are small by international standards and it could well be a large EU bank decides to buy a Cypriot bank to enjoy a share of the international banking from expatriate business and property investors. The blocks put on HSBC in 2004 by the central bank will not be able to be repeated under EU competition rules.

Hard Work

On the other hand the Cyprus mortgage market will remain difficult because of the persistent title deed problem. It will remain good advice to buy Cyprus property with a mortgage because it ensures guarantees are in place to ensure the title deeds are delivered by developers.

If your budget demands it and you want a simple mortgage life when you purchase Cyprus property then you should raise the mortgage from another country if you have sufficient equity.


Hope that helped some of you thinking of investing/ buying property in Cyprus

If you want more info go onto my profile and theres a link to my website.

Sam Orgill

 

[scozzy]

Hi,

I work for a developer- first off, but I have been working in international property for 7 years now.

40% deposits- yes that is what the CBC are requesting, however Pafilia are offering 20% deposits still, so 80% LTV. We do not overvalue our properties to achieve this, we use a bank with whom we have a long standing relationship. In certain cases we can even split this 20% over the period of build.

I know what you're thinking- "That doesn't matter, the market will still see reduced demand due to the usual 40% deposits.". You are correct, but only over the OCtober to December Period (where 60% of sales happen). If you don't remember, the CBC have done this every year for the last 4. However, the amount has been risen to 30%, not 40%. The reason they do this is to protect prices, not harm them!
Basically, by holding back speculative demand from short term investors buying before the euro comes in; protects the property market from growing unsustainably.

IN CONCLUSION- Not only is the 40% deposit a temporary affair, and we have seen such moves in the past- but it is there to protect the market from a crash. Expect the minimum deposit to be reduced within the first few months of next year. The move is to HOLD DEMAND from increasing rediculously, not LOWER it. I sell property in Cyprus, and I would be a very, very, very, rich man if I could broker 5-10% deposits.

The title deeds problem- isn't so much a problem. They are going to change the system soon- however...

The developer I work for separate teh titel deed so that when a client signs the contract of sale they have 'specific performance' on a section of land equivalent to their share of the development. The developer then, (us) never see the title deed, as they are sent straight to the purchaser, when completed in 3-5 years.

Some developers have been known to hold on to Title deeds in order to borrow funds to pay for their next development. You will hear horror stories because, admittedly it has happened- in every country in the world. It is very rare in Cyprus. I recently heard of a tale where *$%s Estates were involved in such a scandal. But let me be clear; you will face this worry wherever you decide to buy.
My advice (aside from 'buy from me') is to get a trusted solicitor, not related to the developer, and ensure they check that the contract specifies a specific 'title number' that you are purchasing along with the property, otherwise you are paying for a neatly piled bunch of building materials, that one day you may have to move to make way for a road. This is rare though, and in the most part, buying from a large developer with a UK office is totally safe.

 

[grumpy001]

scozzy
some of the discussion on here has been fine, I appreiate you work for a developer and you have been very brave naming them, however I feel that if you are going to be brave naming your empoler as a paragon of virtue, you should be brave enough to have the courage of your convictions and name the L*&^%S estates you write of. After all if it is true, then the name wont hurt.

 

[scozzy]

scozzy
some of the discussion on here has been fine, I appreiate you work for a developer and you have been very brave naming them, however I feel that if you are going to be brave naming your empoler as a paragon of virtue, you should be brave enough to have the courage of your convictions and name the L*&^%S estates you write of. After all if it is true, then the name wont hurt.

Come on Grumpy- that wouldn't be fair now would it?

Although I named the developer for whom I work- it must be made clear that I am on this forum as an individual and any posts I make represent only my opinion unless I state otherwise. If it seems like I'm 'plugging' the company at times it is strictly unintentional, I'm sure you are already aware of their impeccable reputation.

As for naming and shaming others- unless I have solid proof and references there is no way I am going to venture forth into the realms of blame. I wouldn't accept such actions against any of my affiliates, and as such I will never make claims without reason.

The point I was trying to make grumpy is that I am admitting, 'worts and all' that there are risks, and I tried to highlight in my post how to avoid the pitfalls. I wish to help buyers, not slander the competition.

If you don't agree please PM me.