MORE than a thousand Britons threatened with repossession after buying a “dream” property in the sun are preparing to fight one of Greece’s largest banks in the courts.
The borrowers who bought holiday homes in Cyprus are battling to protect not just their Cypriot property but their family homes in the UK, as the lender, Alpha Bank, threatens to take back the keys. Their fate and the legal battle they face is a warning to anyone buying a property abroad, especially using a mortgage in a foreign currency.
They were victims of the hard sell to buy in Cyprus with a mortgage denominated in Swiss francs at the peak of the island’s housing boom. Swiss franc loans were sold to tens of thousands of Britons and locals by Cypriot banks and their agents in 2007 and early 2008, as the interest rate was much lower than that available in the Cyprus pound (which became the Euro in January 2008) or sterling. Borrowers were asked to pay about 8 per cent on mortgages in Cyprus pounds or Euros while Swiss franc loans offered rates of about half that.
With hindsight, borrowers piled into Swiss franc mortgages at exactly the wrong time. Foreign currency loans come with huge risks, as mortgage repayments and the loan value in sterling fluctuate with exchange-rate movements. Cyprus’ housing boom occurred just before the credit crisis struck, which caused the Swiss franc to appreciate against currencies worldwide as investors sought to benefit from its reputation as a safe haven. In September 2007 the pound was worth SwFr 2.36. Now it is valued at SwFr 1.52.
The threat of repossession in Cyprus is a reality for hundreds of borrowers
This means that the repayments on mortgages have risen in sterling terms. You would need around £424 to cover a monthly repayment of SwFr 1,000 at an exchange rate of SwFr 2.36 to the pound. At SwFr 1.52 to the pound, your sterling repayment would be closer to £658 a month. The banks have made matters worse by increasing rates, meaning that many borrowers have watched in horror as their payments have doubled.
When Times Money first reported on the plight of the Cyprus property victims (“Foreign currency mortgages turn sour, leaving Brits facing repossession” July 2, 2011) many were at their wits’ end but still managing to pay their loans. Since then, the crisis has escalated, with the threat of repossession becoming a reality for hundreds who have halted their mortgage payments.
Alpha Bank Cyprus, a subsidiary of Greek’s third biggest bank, has been serving writs demanding borrowers, or a lawyer representing them, appear in the District Court of Nicosia within ten days or judgment will be given in their absence. Some of the Britons affected would dearly love to hand back their keys and walk away, but fear being pursued for debts in the UK, and therefore have decided to fight for justice.
Gareth Fatchett, a solicitor at Regulatory Legal, which is acting for 750 homeowners, says: “If they do not fight they will face a judgment in Cyprus and the property will be sold but there will probably still be a debt. The bank can then pursue money through the courts in the UK, putting the debtors’ assets, including their homes in Britain, at risk. This is a Waterloo moment for everyone because they are going to have to fight this.”
The plight of the borrowers has been heightened by the collapse of the Cyprus property market. According to the Central Bank of Cyprus, property prices are down by 15 per cent over the past four years. The franc’s appreciation has also increased the sterling cost of debt. A SwFr 100,000 mortgage would be worth about £42,400 at SwFr 2.36 to the pound. With the franc at SwFr 1.52 to the pound, its value will have increased to about £65,800. Alpha Bank argues that borrowers were asked to sign all the relevant legal documents, including declaration letters acknowledging that they fully understood the risks involved in borrowing in Swiss francs.
But Neil Heaney of Judicare, another law firm representing hundreds of Cyprus victims, says: “There are irregularities and issues with many of the loan documents. Many were signed by lawyers who were given power of attorney but these were not certified properly. This could invalidate the loan agreement.”
Others are fighting on the basis of fraud, claiming that the bank colluded with developers. In the case of off-plan developments bought before they are built, money is released from the bank in tranches as the build progresses. They say that the bank signed off payments before their apartments were at the appropriate stage.
Meanwhile, borrowers who have tried to renegotiate their loan with the bank and keep matters out of court say that their attempts have been quashed (see case study). It is likely to be at least 2014 before any of the cases are heard.
We lost our retirement package
Trevor Holdsworth rues the day in 2007 that he attended a property fair in King’s Hall, Belfast, and decided that Cyprus was the place to buy an apartment for he and his wife Fiona’s retirement.
He went on a three-day trip to Paphos intending to buy one apartment outright but was persuaded to buy a second with a loan.
Mr Holdsworth, who works for the Police Service of Northern Ireland, was introduced to a solicitor, who signed documents for a Swiss franc mortgage from Alpha Bank.
However, rather than taking out a loan on just one property, it was split between the two. As the Swiss franc has appreciated Mr Holdsworth’s mortgage payment has jumped from €400 to €900, and both of the apartments are now in negative equity. Last year Mr Holdsworth, 56, attempted to renegotiate the deal, converting to a euro loan while offering provisos that would ensure the bank would not lose out. However, his pleas were ignored. The couple has now appointed Judicare to act on their behalf, claiming mis-selling.
Mr Holdsworth says: “We have lost our entire retirement package.”