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
Case study
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.”
US Attorney General Schneiderman, interviewed tonight on CNN Quest Means Business, says he has only just started with JP Morgan (Bear Stearn) on mortgages being signed by others than the purchasers.
I found this website, with some cases.
This is in the US but it’s the same problem, the housing bubble and the greed to push sales to people who could not afford them.
Maybe the lawyer representing the UK buyers should read this – We are Winning the Foreclosure War
I support Gavin’s interpretation of Pavlos Loizou’s question. Because the question hinted at bit of responsibility on the part of buyers’ for their actions doesn’t mean it should be rubbished and then ignored. The question can be further extended to ask would they be complaining if the GB Pound and the Euro had appreciated against the Swiss Franc?
Having said that, I have some sympathy for the victims and support absolutely their right to question every aspect of the mortgage lending process to see if they can get out of it. For example, if they gave power of attorney without actually being present in Cyprus at the signing of the PoA document, then it is not valid and all actions and agreements under that PoA can be repudiated. In the UK, an accusation of mis-selling works frequently, but I am not sure that this will be the case in Cyprus and I am pretty confident that the contracts will contain a clause to the effect that Cyprus is the agreed location for any legal action.
Further, the Troika’s proposals for Cyprus contain a statement to the effect that Cyprus Banks must attempt to mitigate the loss from outstanding non-performing mortgage debt by taking possession of the property and selling it.
I feel that there are several issues here which are not necessarily connected.
1. If one takes out a mortgage/loan in one currency and the exchange rate goes against you, I hardly think that’s the fault of a financial institution.
2. Ditto if there’s a downturn in the worldwide economy and the value of one’s investment falls.
3. If, however, corners have been cut by lawyers, developers and banks regarding the written agreements, they’ll have to be held to account and have to take the hit.
4. Ditto if the banks signed off and released monies before the appropriate stages or if they released the full amounts before completion (if applicable).
I would suggest that any knee-jerk reaction to this cautionary tale is inadvisable until the lawyers appointed find out exactly what’s what.
Finally, I’ll have a stab at offering a view vis-a-vis Pavlos Loizou’s question. Namely, would all this have come to light if the mortgage payments had remained roughly the same and/or the properties had at least retained their value? Probably not. Having said that, that’s not the point.
@ Pavlos Maybe you need to explain further ?
Pavlos – my suggestion is you watch “Inside Job” to get the global roots of much of the problem.
Then – invest 20 minutes of your life in this TED talk from Barry Schwartz – for a possible glimpse of the future:
Barry Schwartz: Our loss of wisdom
After that – reflect on how likely it EVER was that ordinary people (not in the know) were going to make a cent of profit from something based around selling off-plan property long-term with a lot of the ‘characters’ involved in it.
Warren Buffett nails it beautifully: “It’s only when the tide goes out – that you realise who has been swimming naked.
The naked know who they are – and so do WE!
Pavlos
Maybe people would have “felt different” if the properties had actually been built after they bought them.
You went to some of these developments on the BBC programme, saw the state of them yet you come out with this?
Just to clarify that it is not only people with completed properties who are receiving writs. People are getting them for properties on developments that are only around 30% complete, 2 years plus late, where the money for “the build†was drawn down over 2 years ago.
So maybe you want to rephrase your question?
Surely Pavlos that particular question should be directed to the Banks?
This case involves the increase in mortgage payments related to the growth of the Swiss Franc hence affecting what people have to repay on a monthly basis.
Had values increased this would have absolutely no affect on the rapid rise in the monthly repayments.
So in answer to your question yes we would as value of the property is not related to the mortgage payment.
The mortgage payment is related to the loan at time of purchase. It does not increase nor decrease as the value of the property fluctuates during the term.
Pavlos, I must agree with you, if prices were to have gone the other way, we would not have this problem. But it is not just the prices, it is the whole of Europe, title deeds, individual people have no bail outs, but the Banks do, who helps the individual?????
If the Banks were to offer the Swiss franc mortgages some of their bail out by redoing the mortgage etc. I am sure Cypriots and Brits would continue to try and pay, remember they to wanted a lovely home and they put probably 50% of their hard earned money on their dream home.
I love my Country Cyprus, but I hate what SOME developers, solicitors and Banks have done, we are not helping our country the way we treat people, even if people went to the courts to defend mis-selling no judge would listen, but in the UK you have the ombudsman etc, what chance does anyone have when it gets to court here.
I have been somewhat involved with this case for over a year, being part of the BBC’s programme and providing advice for the legal team of the buyers.
Throughout this time I have had one question, which to this day remains unanswered: “Would we be discussing about any of this if property prices had risen since they bought the properties?”
I leave it to you to consider the implications of the answer you provide.
Let me correct one thing in this article. The Alpha bank are not threatening nor have any intention of “taking back the keys”.
They do not want these worthless properties on which they so happily and irresponsibly loaned great sums of “Swiss” money.
All they want, by any means possible, is cash to cover the unpaid mortgages.
What really amazes me, is that repossession of the Cyprus properties by the Banks are worthless, so although most of the Bankers and Solicitors and developers who already made money in wrongful selling, they now want more of the Brits money and assets, it was not enough to take the Brits savings, now let’s take their homes which are worth something, most of their scammed money went into England (because England has rules).
I think that all the Brits effected need to get a web page together and find out who their developers wife and family and check how many houses the family own and all the Brits take a charge on their developers properties for wrongful selling.
If Cyprus can do it, so can the Brits, come on don’t just sit and talk about it act, get together, there are more Brits who have lost to Cyprus, than people living in Cyprus.
It would be interesting to know how many developers took out Swiss Franc loans to fund their developments or were they better advised not to get involved with them.
This island of fraud should bow its head in shame.
Corruption on a large scale that is quite rightly being fought by the victims and surely justice will be seen by those poor people that were duped by developers, lawyers, and unscrupulous banks. The greed has helped halt the sales and investment in this once loved beautiful island. The BBC called it a property scam and were quite right in doing so. Thousands of people that have been affected will never set foot on this island ever again, taking away millions in holiday spend that unfortunately will mean the hard working shop workers, bar workers etc will see a massive decline in their income, forcing job losses and debt to themselves.
The amount of EU rules and regulations these people have broken is unreal and surely the courts must see this and will show judgement in favour of the wronged Brits .
Another awful shame. Yes their timing was ‘unfortunate’ but one wonders how many of them did not have the Risks of ‘currency loans’ fully explained to them. My understanding is that some of these people (possibly many?) didn’t even travel to Cyprus, simply relied on UK ‘agents’ and ‘advisers’!! – and arm’s length ‘professionals’ in Cyprus, it seems, acting under Powers of Attorney!!!
Add to all the above to some typical Cyprus ‘irregularities’ twixt developers, lawyers and banks and you get a ‘recipe for disaster’.
I hope all those who have suffered, are still suffering, get ‘Justice’, there will doubtless be many irregularities, errors, even illegal acts that can be shown to have contributed to the current plight of these ‘unfortunates’.
The worry is that there are very probably 1,000s more, very likely many – most even? – Brits whom we haven’t yet heard about who are suffering similar problems.
Another unholy Mess to add to the already large – and worrying – CPDD (Cyprus Property Disasters Dossier).
As far as I can perceive, the only way out of this nightmare for these people, if there was (& still is) a hidden loan taken out by the developer, or other encumbrances?
The banks should have checked this out before granting these Swiss Franc loans, so the legal agreements may be considered to be infected with irregularities and therefore considered to be invalid?
This might be relevant if these scumbags are chasing the unfortunate buyers, through a British Court in order to get their hands on the buyers UK properties?