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Rules to limit risks for home buyers

In a move that has come too late to help those who bought property in Cyprus with home loans denominated in Swiss Francs, the European Parliament has outlined rules to limit risks for home buyers.

HOME buyers would be better informed about the costs and risks of taking on a mortgage, partly shielded against market swings that inflate their repayments and better protected if they default on the loan, under new rules provisionally approved by the European Parliament on Tuesday.

But before finalising these rules, MEPs wish to fine-tune them to ensure that they are properly enforced across the EU.

The legislation will cover mortgages on residential property, residential property including an office space and building land. Some of its requirements would be adapted to reflect differences among EU member states’ national mortgage and property markets, but the information for buyers would have to be presented in a consistent format across the EU.

Before the contract is signed

Anyone signing up for a mortgage in the EU should receive comparable information about the products available, and understand the total cost and long-run financial consequences of taking out the loan. Credit terms offered to borrowers would have to match their current financial situation and take account of their prospects and possible downturns.

Moreover, buyers would have to be given a mandatory 7-day reflection before signing the loan, or a 7-day right of withdrawal thereafter.

While it lasts

MEPs inserted more flexible rules, including a borrower’s right to repay the loan early, subject to possible conditions to be decided by EU member states, and a lender’s right to fair compensation for such early repayment. However, obliging borrowers to pay penalties for early repayment would be prohibited.

Under the new rules for loans denominated in a foreign currency, the borrower should be warned before signing the contract that the instalments payable could increase. Alternatively, the borrower could be allowed to change the currency, on certain conditions and at the exchange rate stated in the loan contract.

Protection against default

MEPs added a new rule stipulating that the return of collateral such as the property itself will suffice to repay the loan, provided that the lender and borrower expressly agree to this in the contract.

Where a borrower defaults on a loan, the legislation should include requirements to sell the property for the “best effort” price and to facilitate the remaining debt repayments, so as to protect consumers and prevent their becoming over-indebted for long periods, say MEPs.

Next steps

MEPs adopted the final wording of the text, but before approving the rules overall, Parliament wants EU member states to undertake to ensure that they are properly enforced on their territory, i.e. throughout the EU.

Procedure: Co-decision (Ordinary Legislative Procedure), 1st reading

REF. : 20130906IPR18832

Further reading

Parliament outlines rules to limit risks for home buyers

Readers' comments

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  • andyp says:

    The Code of Conduct is not an instruction manual on how Lawyers should undertake transactions, it is a general ethics guide. How transactions are undertaken and what is expected of a lawyer is dealt with through education, training, laws and court decisions. This is no different in the UK.

    The difference is that in Cyprus many lawyers simply do not do their job and in my opinion this is NOT due to incompetence but rather too many were in league with the developers. They know that if they get caught The CBA generally protects them or are only likely to fine them 1000 euros.

    The Supreme Court ruling some years ago clearly states that due diligence is a given. This ruling has not been overturned and as such it does not matter what The CBA say or rather do not say on the matter.

    The problem is that we all have to go through the court process to get justice which can take years and money.

    The other problem is that you have to suffer loss otherwise their is nothing really to be gained in this process. I discovered a 64,000cyp developers mortgage on my property some years after I purchased. I wanted to take my lawyer to court for redress but was advised against it as I had not actually lost anything. The developer had not defaulted on the mortgage and until he did and the bank came knocking their was in reality nothing to be done except lodge a complaint with the CBA and if upheld, which it was, this would help in any subsequent court case that may be necessary.

    Rules are there but Cyprus lawyers nor their governing body seem to care about them.

  • Denton Mackrell says:

    Who would buy at all in Cyprus when the scandal just seems to run and run and the internet tells all? Unfortunately, there are still plenty of innocents to scam. Only last night, I was telling a French couple who are thinking of buying a holiday home here all about the problem. They were absolutely shocked as, in their words, ‘we just assumed that as they are part of the EU they would be practising the same standards that we are used to in France’. Apparently, the French government has long warned its citizens not to buy in north Cyprus but says nothing about the government-controlled south!!

  • Andrew says:

    When buying a home a person would naturally expect a lawyer to protect their interest.It appears that Cyprus is a rouge state within the EU. If a buyer cannot put his trust in a lawyer then who can that buyer trust.

    Why waste money on a lawyer. Why attempt to buy a home in Cyprus. Maybe this is the reason for the demise of the property market in Cyprus, methinks.

  • Mike says:

    Too little too late and it does not address the “Cyprus way of doing things”. No legislation will ever cover every “artful way” that lawyers, developers and agents in Cyprus seem to thrive on. Sadly only the customer can prevent the many pitfalls that await any buyer, of any nationality and of any level of awareness.

    Why do ‘we’ leave our brains at Gatwick, Manchester or Glasgow airports when on a property buying trip. I guess we assume the same ethics apply to the Cyprus conveyancing system as is applied to the UK system. Not so, despite developers impressing that the system is the same as in British Law. Sadly too many have found that not to be the case but at too late a date.

  • kufrahdog says:

    Andrew, re your post 12 Sep 13 @ 1214

    May I comment.

    As far as I can tell lawyers in Cyprus currently do not have an obligation under the Code of Conduct Rules (see Nigel’s post 15 Aug 13 @ 1156 within CPNM email dated 12 Aug 13 @ 0603) for the Cyprus Bar Association (CBA) to exercise due diligence in respect of property conveyancing on behalf of their clients. In fact there are no rules laid down for conveyancing and as a consequence lawyers tend to do their thing.

    If you are suggesting, in respect of this piece of planned legislation, that due diligence should be a legally binding requirement on lawyers to perform on behalf of their clients before a contract is signed, then that makes perfect sense.

    However, due diligence in respect of conveyancing is not the same as due diligence when buying, say, a business, as I am sure your are aware. This means that due diligence in respect of conveyancing must be spelt out in detail.

    Add to the above that the CBA seem incapable of introducing a code of practice for conveyancing in spite of Supreme Court rulings, and you will see that there are real difficulties to be overcome.

    Should one’s lawyer fail to deliver due diligence, if ever it were to be a legal requirement in Cyprus, one would want to do more than disbar him from practising or achieve compensation. I suggest that one would also want rights of full legal civil and or criminal redress.

    Nothing in this whole, sad story of buyers falling foul of buying property in Cyprus is ‘simple’, nothing. KD.

  • Pippa says:

    The EU seems to be completely ignoring the plight of the property buyers that have paid for their Cyprus property outright and are now at the mercy of the banks who lent money to developers and cannot or will not pursue these developers personally for any out standing debts but are attempting to repossess the properties.

  • Andrew says:

    Rule 1.Lawyers have a duty to perform due diligence when representing their clients. Lawyers should act on behalf of their clients in the same manner as if they were acting for themselves. Failure to do this will result in full compensation payable to their client. Repeat failure will result in being disbarred.

    Simples!

  • kufrahdog says:

    This is a small step in the right direction for home buyers. But it does nothing to stop home buyers falling prey to the insidious practice of banks giving mortgages to developers on the basis of collateral asset lending so prevalent in Cyprus, rather than the ability of the developer to service his debt. Nor does it make a search for bank collateral asset status, encumbrances and infringements on a property a binding legal requirement before a contract is signed. These are severe limitations and weaknesses to the legislation; and without doubt there are others.

    While any action by the European Parliament which would protect home buyers is to be welcomed, this piece of legislation is too limited because it does not go far enough to eliminate all the known risks. KD.

  • tj says:

    All too late. Surely in Cyprus due to the blatant miss selling they should be looking to help all the people who are already trapped by the corrupt practices adopted.

    Giving back the property should also be available.

  • steve says:

    Just an EU ruling to try and boost the property sector in Cyprus thus ensuring the EU stand a bit better chance of securing their bailout funds. As MarkD suggests this ruling was Cyprus based. Everywhere else in the EU, the rules governing mortgages for foreign buyers seem to be running fine. As it states in the headline these rules have come too late to help those who bought property in Cyprus in Swiss Francs. What is the EU going to do to support these people.

  • andyp says:

    Just another regulation for Cyprus to ignore.

    Any chance of there ever being anything to actually help those already conned and suffering?

  • MarkD says:

    Sounds like this was specifically worded for Cyprus!!! Unless this is retrospective (and I doubt that) a little too late for too many people!

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