Cyprus Property Mortgages & Interest Rates
Some people with Cyprus mortgages have recently been notified by Cypriot Banks that due to market conditions they have had to increase the interest rate to 6.75%. Typically Cyprus banks are increasing their margin on existing home loans from 2.25% to 3.5% or 1.5% to 3%. That means 3.5% + EURIBOR……or the variable rate for mortgages or home loans that the bank itself sets. That means 3.5% + EURIBOR…….or the variable rate for mortgages or home loans that the bank itself sets.
How can this be?
There have been rate cuts by the European Central Bank !!
The Cyprus banking system and the other euro lenders in other EC countries experienced the same problem that beset the UK. One of the key problems in the current crisis was the lack of lending between banks. They were not lending to each other as they have done in the past because of concerns about losses in global property securities. EURIBOR is the European ‘Inter Bank Offer Rate’ and is the rate at which banks lend to each other.
http://www.euribor.org/html/content/euribor_data.html
http://www.econstats.com/r/rlib_am9.htm
Because there still is a lack of liquidity, concern about the ability of borrowers to repay and that property values can provide good security at sensible margins of equity and borrower contribution mortgage rates have increased in Cyprus.
New legislation is promised by the Cyprus Government regarding title deeds and developers borrowing against them by the end of 2008. It looks like the Cyprus banks are getting ready for the effect of this to feed through to the Cyprus Property Market.
There are well founded rumours that the banks are not issuing any new mortgages this year, ( to be reviewed at the end of December) and that the banks actually stopped issuing new mortgages 6 weeks ago.
Perhaps the new legislation will have to be be delayed? But unless confidence in the issue of title deeds is restored and the position of developers mortgages is resolved then the investor cyprus property buyer may not return anyway. A difficult fence for the Cyprus Government to sit upon !!
Back to the banks. From the Cyprus Mail November 2008
“The Bank of Cyprus announced net profits for the first nine months of 2008 of €375 million (£219.5m). This would mean that its profits for the whole year, without the increase in the interest rates, would be in the region of €500m (£293m) – about €17m (£10m) higher than the previous year.”
“In 2004 the net profit of the Bank of Cyprus was €64m (£37.5m). In other words, in the space of four years their annual profits increased by 681%. And before anyone says that this was the result of the increase in its capital and reserves, I must point out that the increase in the capital and reserves, during the same period was only 281%. Therefore, this year for every pound of capital employed, profits were 400% more than in 2004.”
“But announcing interest rate hikes in a year where they have made record profits and at a time of a global recession that will not leave Cyprus unaffected makes no sense at all”………..especially if it causes a recession in the Cyprus Property Market.
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From http://www.aloizou.com.cy 20/12/09
The Greek Economy & the Cyprus Property Market
In an effort of unity, E.U. leaders pledged confidence in the Greek economy, but that is one thing and another what it will actually happen in the immediate future.
“What is worrying for Cyprus, is that the 3 local (Cypriot) and another 3 locally based Greek banks, in their effort to draw funds, they must offer higher deposit rates to depositors. This will mean that the local Cyprus depositors will be lured towards this situation and ask for higher deposits in Cyprus and hence higher lending rates. This will bring a further blow to the local/ Cypriot and Greek banks, who will restrict further their lending and increase the local borrowing rates. Our own (Cypriot) Government has just decided to help local Banks cash deposits by distributing €3 bil. to local banks and Co-Ops in analogy of their business. This scheme however may go up in the air if what we have predicted comes true, since some local and Greek Banks might direct their share of the €3 bil. at low cost to their Greek operation, in order to get higher lending rates in Greece etc.”