Mortgage bondage in Cyprus

Despite the fact that since March 2023 loan rates have increased significantly, mortgages remain one of the most popular ways to buy a home in Cyprus.

On the one hand, a mortgage allows you to invest in your home profitably and expands the possibilities of working with the capital gained. For example, instead of giving all the money for a dream house, you can take out a mortgage, move in, and invest the rest in education, business or any other more understandable enterprise. The main thing is that the price of the house will no longer jump, and the choice was absolutely sincere.

But, alas, in some cases the mortgage is a last resort and is seen solely as an attempt to save money. The purchase turns into a real mortgage slavery with all the ensuing consequences, such as stress, dissatisfaction with their financial situation, periodic attempts to restructure the loan.

In this blog, we will talk about how much a mortgage in Cyprus costs and whether it is really that economical.

Loans in Cyprus have become more expensive in 2023

After the island's Central Bank announced in January that it would raise the prime rate on loans by 50 basis points to 2.5% in March 2023, the average cost of a mortgage has risen significantly. If before it was possible to take a loan at a minimum interest of 1.75%, then today the rate of the European Central Bank was added.

So the average bar on the loan now varies between 4-6%.

Given the fact that housing in Cyprus remains affordable against the background of proposals of other European countries, the picture is generally quite positive and even promising. Housing loans are available even to foreigners from third countries working in Cyprus. But they will require a higher down payment than EU citizens and the indigenous population (from Europeans 20%, from the rest 30% and above). With equal options, the monthly mortgage payment is twice lower than the average monthly rent.

The cost of a mortgage is different in each situation

In Cyprus with the help of a mortgage you can buy a residential or commercial property, secondary or new construction. The total cost is calculated based on the specific objectives and program of the lending institution.

If it is a purchase of a new building at any stage of construction, the buyer makes the following payments:

1. Deposit.This is optional, but the seller has the right to request it in order to take his listing off all the tabloids. The amount of the deposit in Cyprus varies from 5 to 15 thousand euros and above. The buyer has the right to agree or refuse to pay.
2. Services of a professional appraiser. The cost ranges from 200 euros for medium-class objects to 700 euros for elite options.
3. The first installment in the amount of 20% of the total value of the property.
4. Fee for mortgage registration 1%.
5. VAT 19%. When buying a first and main home VAT 5%. Some developers immediately provide an opportunity for 5% payment, others offer to first pay 19%, and later formalize the refund through the tax office. Real estate with 5% VAT is prohibited by law to use for investment purposes in the first 10 years of ownership, that is, in the foreseeable future, the apartment can not be rented out.
6. Insurance premiums. Borrower's life insurance costs from 100 to 600 euros per year. Property insurance from 300 to 1200 euros per year (the price depends on the quality and other characteristics of the building). Title insurance for purchased housing is not mandatory, but under the loan agreement from its presence sometimes depends on the interest rate. This point should be clarified in a particular credit organization.
7. Stamp duty. It must be paid within 30 days after signing the purchase and sale agreement, after which the contract can be transferred to the Land Committee. Registration should take place no later than two months after the conclusion of the contract. The fee is 0.15% of the first 170,860 euros of the object's price and 0.2% of the amount that exceeds 170,860 euros.

Costs of registration

So, an example. We buy a 3-bedroom apartment at the off-plan stage. The average cost is 300 thousand euros.

Contribution of 30% - 90 thousand euros. The appraiser from the bank - 200 euros. Fee for mortgage registration 1% - 3 thousand euros. VAT 57 thousand euros or 15 thousand when buying a first and main home. All insurance - 500 euros per year. Stamp duty is approximately 515 euros. That is, on average, in addition to the first installment, you need to pay about 19 thousand euros, and when investing 61 thousand. Provided that the mortgage term of 25-30 years, the main monthly payment including insurance will be about 1 thousand euros per month. If you want, you can close the debt earlier, but in this case you will pay penalties to the bank.

If we are talking about the purchase of ready-made secondary housing, then from the list cross off VAT, but add a fee for the registration of ownership, which is about 4% of the total value of the property. The amount is tangible. When registering housing on several owners, the cost of the fee is proportionally reduced. And if more detailed, the price of the contribution is calculated in a well-known way:

1. From the first 85 thousand euros of the value of the property, 3% is paid.
2. With the amount from 85 thousand to 170 thousand euros - 5%.
3. From the price exceeding 170 thousand euros, 8% is paid.

But everything would be too simple, if not for one nuance. Banks give credit for the amount approved by the appraiser. Secondary apartment, which the market offers at one price, in the bank may cost differently.

More often than not, this price is lower than the price declared by the seller. In this case, the buyer will have to pay the difference from his wallet. Well, if the initial payment in the calculation of the buyer was without an additional "cushion", then, alas, will have to refuse this offer. As an option, credit organizations can issue an additional consumer loan, covering the difference.

It would seem that a magnificent secondary apartment, which you are happy to buy for 300 000 euros - it has three bathrooms, three balconies, and the floor with Italian parquet, which so liked your grandmother - suddenly estimated at 250 000 euros. I mean, that's not fair! But the fact is.

Comparing the options for buying new construction and secondary housing can be added that in the first case the buyer has less paperwork, and the purchase process is usually faster. A secondary home must have a Title and have proof available that the seller has no outstanding debt to the state.

For example, before scheduling a day to execute the Contract of Sale at the Land Department, the previous owner must pay absolutely all taxes, or better yet, obtain a Tax clearance certificate (aka tax clearance) as required by many banks. Are they ready for this?

Municipal taxes are applied by each local municipality to owners of real estate. The Council Tax is based on the value of the property and rates vary from 0.1% to 0.2%. It must be paid to the local municipality annually between October and December. Without this paper, the bank will definitely not be able to finalize the loan. You can wait a long time for the tax to be paid, but in the meantime the bank will slowly start to deduct the transaction fees. In addition, the seller must pay other annual fees, including garbage and sewer taxes.

When purchasing any property by a foreigner an application to the Council of Ministers (Council of Ministers) will be required to issue a permit for the purchase of real estate in Cyprus. The procedure takes an average of 2 months, but sometimes goes faster. Just at this time the seller of the secondary will have time to close all tax issues, if any.

While the buyer is waiting for all the above documents or the apartment requires repair, he also needs housing, which can be brought a line in the additional costs. By the way, developers sometimes attract buyers by offering to pay the cost of rent during the construction of the new building. But no one specifies this in the contract. So we do not take into account.

Buying property with the help of a mortgage is beneficial if you really plan to live on the island for a long time. In addition, it will be a plus when applying for citizenship of Cyprus on naturalization. Considering the associated costs, the financial difference with life in a rented property is not significant. And here rather plays a role of the qualities of the character of the person. Some people like to change locations, and for others the idea of their own home for many years is important.

Interested in housing on the island? Check out DOM, the #1 real estate agency in Cyprus! The agency's website has the largest real estate database in the country - more than 30 thousand residential and commercial properties all over the island. Select and contact professional brokers who will help you make the right choice!

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