Mortgages in Cyprus

The Editor saw this scenario and felt that it was the basis of a wider article explaining this particular issue and looking at the present mortgage position in Cyprus.

“We have contacted the developer and have been informed by Mr.  ***** that the mortgage is there, which is not due to anything outstanding to the bank but purely so that any buyers on the project can borrow from the bank without needing any extra security or any additional cost. This additional cost is usually 1.8% of the loan amount per annum.”

If you need a mortgage from a bank in Cyprus (there are no building societies) then like property lenders all over the world the Cyprus bank will want security for the loan. Normally you would be expected to provide the deeds and the Cyprus bank would take a first mortgage. If you default then the Cyprus bank sells the property !!

But in Cyprus there are usually long delays in being able to obtain your deeds. So on the face of things a purchaser cannot provide security. But instead the Cyprus bank will accept a guarantee from the developer. The developer charges a fee of around 2% per annum.  So on a loan of euro 100,000 you pay euro 2,000.

You also pay the Cyprus bank around 6% in interest making euro 9,000 per year PLUS repayments of capital. On a euro 100,000 loan this is simply euro 10,000 per year. So overall you need to pay euro 21,000 in financing charges before running costs !!

Remember also that the Cyprus bank will only lend you a maximum of 70% so in this case a loan of euro 100,000 you would have to find euro 40,000 in cash.  The property purchased could be euro 140,000,excluding VAT,overall but the loan cannot include any tax payments involved.  This could represent as much as 11% of the purchase price for registration and notary fees, legal fees, real estate agents’ commissions, and sales and transfer taxes. And the VAT at 15% cannot be included in the loan.

Back to the guarantee.  The developer provides the guarantee to the Cyprus bank.  The Cyprus bank takes a mortgage over your property and everyone else’s to secure the guarantee liability.  If the developer goes bust then the bank will not just look to the amount you borrowed but to the whole of your property to meet wider debts.  Unless you get a legal document to say otherwise. If you did not borrow to purchase then you will need a legal waiver from the developer and the Cyprus bank saying that your property is excluded.

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