Banks not helping young couples climb property ladder

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Land developers argue that liquidity-rich Cyprus banks are making life difficult for young couples who want to buy a first home by denying them a loan.

As developers are relying more on Cypriot buyers, young couples are finding it difficult to secure financing to purchasing a house or a flat.

The Land Developers Association during a meeting with Central Bank officials raised the issue of banks not providing mortgages for home buyers starting out.

The association briefed Central bank governor Constantinos Herodotou on the overall picture of the property market and how a lack of housing loans is affecting it.

Antonis Frangoudes, secretary of the Association told the Financial Mirror: “At a time when rents are high, young couples are considering the alternative which is acquiring their own house, taking advantage of low-interest rates.”

But the governor was told young couples are hitting a brick wall of difficulties, as most of them are rejected after screening procedures.

“Although banks are advertising their mortgage products and looking for new borrowers, reports from developers suggest the opposite,” argued Frangoudes.

He said that young couples usually seek financing between €200,000 to €300,000 while 20% of the property value is paid in advance.

The bank governor told developers that each bank is responsible for their own lending policy.

They were also told that according to central bank data the net demand for household mortgages remained unchanged in the third quarter of 2019.

Fear of financial crisis

Although banks have a surplus of liquidity, they hesitate to give out loans fearing a repeat of events that led to the 2012 financial crisis.

Cypriot banks are estimated to have about €14.5 bln more in deposits than loans, forcing them to charge their major depositors to cover the cost of depositing money with the ECB.

Frangoudes said the Association will take up the matter of housing loans with the Bankers Association, in an effort to persuade banks into relaxing loan criteria.

Secretary of the Federation of Cyprus Building Contractors Associations (OSEOK) Frangos Prokopa also referred to difficulties faced by developers when it comes to obtaining financing from local banks.

“While there is a great demand for housing, with rents going up, banks keep a tight lid on loans to developers. Most projects are self-financed, as developers turn to banks abroad where they are also able to find cheaper money.”

He said there are a lot of housing developments underway which will help bring rent prices down.

Prokopa noted that bank practices are understandable to a point when it comes to mortgages, but they need to be more lenient when screening potential buyers of a housing development project.

He believes the government will have to revise its housing policy, as efforts to counter rising rents and homelessness by giving incentives to developers to put cheaper flats on the market has fallen short.

Part of the state’s new housing policy is affordable housing which sees the government offering incentives to developers to offer cost-price homes for low-income groups.

Developers have not shown an interest in the scheme which would see them benefit from a 30% increase on their building coefficient for apartments. These extra flats would be rented out below market price to vulnerable groups.

If developers opt to sell the additional flats built, then 60% should be sold at cost price to people meeting the criteria to be set.

In the context of the affordable housing scheme, developers could be allowed to keep part of the additional construction, while the remainder will be available as cheap accommodate.

Prokopa said the scheme was not designed for developers building big housing projects, nor did it take into account the cost of land, which in some cases prohibited developers from building and selling cheaper housing units.

“The government could look into giving more incentives, either cash or other relaxations while looking to include smaller developers”.

Currently, a developer eligible to participate in the scheme must build on four adjacent plots of land, leaving those who want to build smaller housing projects out in the cold.