Banks in Cyprus have reduced mortgage rates to their lowest level in years, making home purchases more affordable for young families and the middle class. Interest in home buying through mortgages has been steadily growing, driven by this decline in rates from local financial institutions.
According to the latest data from the Central Bank of Cyprus, September 2025 saw the most favorable borrowing conditions of the year. The average interest rate on housing loans fell to 3.63%, down from 3.91% in August.
Banking sector representatives say the move aims to stimulate the real estate market, which has seen steady price growth in recent years. The lower rates make monthly mortgage payments more manageable for average households, helping to maintain activity in the housing sector.
Mortgage Rates at Their Lowest in a Year
The drop in mortgage rates in September was the sharpest decline in the past 12 months. Since the beginning of the year, the average rate has fallen by 0.8 percentage points — a significant change amid generally tighter credit conditions across Europe.
For comparison: in September 2024, the average mortgage rate stood at 4.53%, and in 2023 — 4.33%. Just a year earlier, in September 2022, it was 3.06%. This means the current rate is nearly back to pre-crisis levels when loans were at their most affordable.
The Central Bank of Cyprus explained that local lenders’ portfolios include a variety of mortgage types — from loans for primary residences to those for vacation or investment properties. Shifts in the proportions of these categories affect the weighted average rate each month.
Interestingly, the volume of new mortgage loans rose to €112.9 million in September, making up the majority of all new lending (€165.4 million). The month before, those figures were €96.3 million and €144.1 million, respectively.
Business Loans Show Mixed Trends
While mortgage rates are falling steadily, the picture for business loans is more complex. The interest rate for loans to non-financial corporations of up to €1 million increased slightly from 4.19% to 4.32%. Still, borrowing costs remain well below early 2025 levels, when rates peaked around 5%. For comparison, in September 2024 the rate averaged 5.52%, and in 2023 — 5.79%.
For large business loans exceeding €1 million, the trend reversed — rates dropped from 4.3% to 3.79%, significantly below last year’s figures (5.26% in 2024, 5.59% in 2023). The volume of such large loans jumped to €246.7 million in September, compared to just €83.9 million the month before, signaling renewed corporate activity and rising business confidence in Cyprus’s financial sector.
Cyprus Savers Lose Out Compared to the Eurozone
While lending rates are falling, deposit interest rates in Cyprus remain among the lowest in the euro area. As of September 2025, the average interest rate on household term deposits was 0.78%, compared to a 1.74% eurozone average. For non-financial companies, the gap is even wider: 1.08% in Cyprus versus 1.94% in the eurozone.
Experts note that banks are hesitant to raise deposit rates due to cost concerns, despite growing customer pressure. However, a gradual alignment with European levels is expected in the long term, especially if the European Central Bank continues to ease its monetary policy in 2026.
What Lower Rates Mean for the Housing Market
Analysts believe the mortgage rate reduction will soon trigger a new wave of activity in Cyprus’s property market. Young families will be the main beneficiaries, gaining access to affordable home loans for their first apartments or houses, while investors are expected to show renewed interest in residential developments in Limassol, Larnaca, and Paphos.
Economists also suggest that accessible mortgages could drive growth in the construction sector, boosting employment and housing supply.
However, they caution that if property prices continue to rise while household incomes stagnate, the benefits of lower rates could be partially offset. Maintaining a balance between loan affordability and price stability will be key.
Outlook for 2026
With inflation stabilizing and the ECB expected to take further easing measures, the outlook for Cyprus’s lending market remains optimistic. Banks are already preparing new mortgage products featuring fixed rates and flexible repayment terms.
If current trends continue, 2026 could become one of the strongest years for Cyprus’s housing market in recent history.