Latest Headlines

Primary residence protection up to €350,000

The Cabinet has approved primary residence protection legislation designed safeguard the homes of low-income families and small and medium sized enterprises facing economic hardship.

primary residence protectionYESTERDAY the Cabinet approved a much anticipated draft bill to protect primary residences from seizure according to a report in Stockwatch.

The bill, which will be referred to a plenary session of Parliament, will protect those who have borrowed up to €350,000 to purchase their main residence and small and medium sized enterprises (SMEs) that have used their primary residence as collateral to secure a mortgage.

The bill, if approved by Parliament, will extend the functions of Finance Commissioner Pavlos Ioannou to include the management of mediation procedures for restructuring mortgages, in line with the Central Bank Directive, where a primary residence has been used as collateral and the borrower is unable to maintain repayments.

The government’s original draft bill was put on hold following an acrimonious debate between government and opposition parties in Parliament last month.

At that time Finance Minister Haris Georgiades said that the Government was in favour of protecting primary residences under a comprehensive scheme that would benefit low-income families facing economic problems. However, the legislation proposed by the opposition parties would result in benefitting people who, although in a position to service their loans, would take advantage of the situation by holding back from doing so.

Readers' comments

Comments on this article are no longer being accepted.

  • JustSomeone says:

    @andyp
    ”The problem with Cyprus and many other countries is that they do not have a proper welfare systems to support such people who genuinely need help/housing. Why? Because they do not want to pay for it through the tax system.”

    On the contrary, classic powerhouses like the USA and the UK that do have better welfare systems do not suffer from such issues.

    Their welfare systems support the people. Have you ever seen homeless people in the UK or the USA? The london and new york underground? No!! This is the result of their excellent welfare systems!LOL

    Are we serious here?

  • @kufrahdog We have the added problem that banks have not been pursuing developers for their loan repayments because under the unique system that the banks used to operate a loan did not become non-performing if the value of its underlying collateral exceeded the amount advanced.

    Now that the troika has made Cyprus define NPLs in line with the rest of the world the true depth of the problem has emerged.

  • kufrahdog says:

    @Nigel re yours at 1208 am:

    Thank you, Nigel, for your explanation. The implications arising from the way the Cypriot system works are horrendous, as so much of the process is deliberately not revealed to the off-plan property purchaser.

    The lack of an effective and enforced property conveyancing system places no obligation on lawyers to explain how the system you have described works; or to write contracts of sale that eliminate or mitigate the risks to which the off-plan property buyer is exposed by this abnormal process and about which he or she would be ordinarily unaware.

    Your reply also explains how anyone in Cyprus can set up as a developer regardless of financial standing, qualification or suitability.

    One can only hope that future property buyers take heed of your wise words and act accordingly. Thank you, again. KD.

  • @kufrahdog – A mortgage is a type of loan that is secured by the property for which it has been granted.

    A mortgage is the standard method used by home buyers enabling them to purchase a home without the need to pay the full price immediately.

    A home loan, which is known as a ‘home construction loan’ in the USA, is a loan used to finance the building of a home.

    When you buy a new home from a developer in the UK, the property development company finances the purchase of the land and the construction costs of the properties from their own resources.

    In Cyprus developers finance the purchase of the land, but the cost of constructing the properties is paid by the buyer.

    In the UK, once a mortgage is approved, it remains ‘on ice’ until the buyer takes delivery of a property and completion (the transfer of ownership from the developer to the buyer) is achieved. The mortgage is then activated using the property the buyer has purchased as collateral.

    In Cyprus buyers cannot get a mortgage to buy an off-plan property because the property does not exist and therefore it cannot be used as collateral – so the buyer is granted a ‘home loan’, which is invariably guaranteed by the developer. (This guarantee enables the bank to recover the property if the buyer defaults on the loan).

    In Cyprus the developer draws down the buyer’s home loan as construction progresses. When you see all the ads saying ‘nothing to pay until delivery’, what they don’t say is that throughout the construction of the property interest is added to the loan because it is used by the developer.

    Another thing to note. If in the UK a developer goes bust before you take delivery of your new home, all you lose is a couple of thousand pounds deposit and your legal fees.

    In Cyprus if a developer goes bust before you take delivery of your new home, you lose everything – your money and your home. To recover the situation and save your house from the clutches of the bank, the receiver will ask you to contribute to repaying the developer’s debt.

    As many have found to their cost – buying a home off-plan in Cyprus can be extremely risky and best avoided.

  • kufrahdog says:

    @ Nigel – thanks for your reply at 1033 am.

    I am not a banker, but it seems odd to me that developers are granted mortgages when perhaps business development loans would be more appropriate while purchasers are granted ‘home loans’ instead of mortgages.

    I am sure that most of us also feel that it is most inappropriate that legislation permits that houses built for purchasers can be taken by banks as collateral for developer mortgages without the knowledge or prior consent of the purchasers.

    These practices are the cause of grievous suffering by many caught in the Great Title Deed Scam. Surely some EU authority can do something to ensure that the Cypriot authorities comply with more normal European business and legal practices? KD.

  • @Peter Davis – There are many more Cypriots in this invidious position than foreigners as more than two-thirds of all properties sold off-plan are bought by Cypriots. Check the sales statistics if you’re in any doubt.

    Furthermore, all those Cypriots who bought their primary residence on land that the developer mortgaged and have yet to receive their Deeds will not benefit from this law as it stands – as they like everyone else who bought off-plan with financing will have a home loan not a mortgage.

    This new law, assuming that it’s passed as it stands, will only benefit those with Title Deeds who cannot afford the mortgage repayments on their primary residence (assuming they borrowed €320,000 or less).

  • Peter Davis says:

    There are two types of discrimination..direct and indirect.

    Direct is where discrimination was intended. ie. only people who speak Greek need to apply, or where an advert requests only female waiters.

    Indirect is where discrimination was never intended, but nevertheless because of the rules or regulations one party suffers discrimination.

    An example of indirect discrimination would be where holidays homes are exempted from protection under the Act, because that would effect overseas purchasers more than local residents, and result in discrimination against other nationalities.

  • @MollieMoo – the legislation, which has yet to be approved, is designed to protect the primary residence of those unable to maintain their mortgage repayments (providing that mortgage does not exceed €35,000).

    Assuming your neighbour hasn’t got the deeds to the property he/she will not have a mortgage – she will have a ‘home loan’.

    Until we see the law after it’s been amended and approved by Parliament we will not know precisely who will be protected.

  • MollieMoo says:

    I’m not too clear on this. Does this mean that people without Mortgages with their 1st home sitting on a developer’s debt will, or will not, be protected?

    If not, then my neighbour in the same complex with a mortgage will be protected but I wont. That’s hardly fair.

  • Costas Apacket says:

    Nigel & David R, Let’s get something clear, I fully support the principle that Cypriots or any other Nationals who only own one property in Cyprus whether this is their primary residence or not should be protected by a procedure where they discuss their inability to pay with their lender and work out the best way to protect them.

    I am not suggesting for one moment that anyone group is more or less deserving than any other, but the legislation as proposed will discriminate against some of those who only own one property on the Island which I believe is wrong.

    As for a lack of humanity I think we all know where that lies in the Cypriot property jungle.

  • @kufrahdog – The Central Bank of Cyprus issued a directive last December ‘The Directive on Loan Origination Processes and Processes of Reviewing Existing Loans of 2013‘. It states:

    “6.(2) The decisive/overriding criterion for granting a Credit Facility is the Borrower’s ability to repay the Credit Facility within the approved time limit.”

    “3.(3) The basic principle when assessing or reviewing a Loan is that the value of collateral is not a decisive factor in the ACI’s [Authorised Credit Institution] assessment of a Loan application. Collateral could only serve as a secondary source of repayment, and as such it shall be assessed.”

    Shame it took the CB so long to come to its senses.

  • Adrian says:

    Oh good!, that means that the house that people bought and paid for but have been unable to get title to because the totally negligent bank loaned the developer money that has not been repaid is allowed to keep it. Meanwhile the developer drives to his million plus house in big car that looks like a taxi. All the property is in a relatives name. Maybe the tax authority should check into the relatives finances and find out how they acquired the money to buy all this property and did they pay the tax on it. The tax people would get their money and if everybody pays their bit it should all work out. Welcome to Utopia!!

  • kufrahdog says:

    One cannot believe that a low-income family would be allowed by a lending bank to take on a mortgage of EUR350,000; and if such families are granted loans on such a scale it is no wonder that borrowers fall into arrears.

    The same principle applies to SMEs that have used primary residences as collateral for mortgage loans. But these situations are the product of a Cypriot banking system which is not fit for purpose and engages in abnormal and high risk practices. (Please see the Pimco Europe Report ‘Independent Due Diligence of the Banking System of Cyprus‘ dated March 2013 and in particular paragraph 1.2.2 on page 10). Society unfortunately pays the penalty and the less well off suffer disproportionately.

    The banks should be forbidden to conduct asset based lending and instead be required to lend on borrowers’ ability to pay for their loans.

    As long as the banks engage in idiosyncratic business practices it will be necessary to introduce piecemeal legislation such as that described in the article above; and such arrangements only serve to divide society rather than unite. KD.

  • andyp says:

    No one should lose their home, holiday or otherwise, to pay for the debts of others.

    This is the issue which requires to be addressed.

    As far as protecting debtors who have genuinely hit hard times is concerned, in Utopia, that is all well and good but in reality it just means someone else has to pay on there behalf by other means such as more bank bail ins, less interest on deposits, higher insurance cost or higher direct or indirect taxes.

    The problem with Cyprus and many other countries is that they do not have a proper welfare systems to support such people who genuinely need help/housing. Why? Because they do not want to pay for it through the tax system.

  • David R says:

    Well said Mr Howarth.

    Some people commenting have no humanity.

  • @Costas Apacket – of course the majority to be helped will be Cypriot families facing financial difficulties – because the majority of homes here will be primary residents owned by Cypriots.

    If you have problems maintaining your loan repayments you should discuss it with your bank. The Central Bank Directive applies to everyone – not just Cypriots.

    If primary residences are not protected these people in financial difficulties will end up on the streets – you are probably unaware that there is no local authority housing here to re-house those who have lost their homes.

    At least if someone loses their holiday home here they will still have their primary residence.

  • Costas Apacket says:

    I agree with you Nigel, but I maintain that the vast majority of those whose primary residences would be protected by this legislation out of a population of circa 800,000 would be Cypriots.

    I do not see it as fair that someone who has perhaps bought a house in Cyprus which they intend to retire to at some point in the future should not be protected just the same as anyone else with just one property on the island.

    I totally agree that those who own many properties or land who either can’t, or choose not to, service their outstanding loans should not be protected by any legislation, but to ignore those with one Cypriot property just because it is not their primary residience is totally discriminatory and non productive in my humble opinion.

    Picking on those with just one property is not the most efficient or productive way to get the majority of the outstanding NPL’s repaid when you can repossess literally hundreds of properties and land assets from just a small number of NPL owners using just a small number of legal actions rather than thousands of them.

    This is a recipe for mass discrimination and all the attendant bad publicity that will go with it.

  • @Costas Apacket – There are more than 60,000 Brits living in Cyprus in their ‘main residence’. And I know Americans, Armenians, Canadians, Germans, Italians, Latvians, Lebanese, Montenegrins, Poles, Russians, Serbians, Ukrainians and Syrians who are also living here in their ‘main residence’.

    All of these will be protected under the new law assuming it’s passed – and assuming they’re in financial difficulties and meet the criteria.

    My main residence is in Cyprus and I pay my taxes here, but I also have a secondary residence in the UK.

  • Costas Apacket says:

    The term ‘main residence’ needs to be clarified because the majority of those who this term covers and protects would by definition be Cypriots.

    The term in my opinion should be changed to ‘First Cypriot Residence’ or FCR for short which would cover both Cypriots and those who have invested in a home in Cyprus but who also own a home in another country, otherwise this is just another way to hang JF out to dry, yet again.

    What a great way that would be for the Pres to attract inward investment, screwing foreigners yet again.

    Changing the term to FCR would still allow the banks to pursue those who have large property portfolios, who after all are the main culprits when it comes to outstanding NPL’s

  • The views expressed in readers' comments are not necessarily shared by the Cyprus Property News.

  • Text size

Back to top