Inflation dents home-owning dreams

1 min read

Hiking inflation is threatening to halt an upward trend in housing loans from Cypriot banks recorded in the past two years, as interest rates are being pushed up.

Cyprus bank officials say that high inflation is squeezing households having a harder time making ends meet, ultimately putting off buying their own house.

Amid inflationary pressures and an increase in the cost-of-living devouring household incomes, the number of new mortgages is the highest since December 2014, when the Central Bank began recording data.

New net mortgage loans stood at €693.6 mln in the first eight months of 2022, up from €520.2 mln in the eight months of 2021, €306.3 mln in 2020 and €454.3 mln in 2019.

News site Stockwatch quoted a Bank of Cyprus official confirming: “There is a slight decline in mortgage take-up, which appears to be driven by inflationary trends, the rising cost of living and recent interest rate hikes.”

A Hellenic Bank official said: “Although the demand for mortgages remains at relatively high levels, we are seeing a slight decrease compared to last year in terms of demand.

“Mainly due to the sharp and serious increase in construction materials, the reduced disposable income and the small increase in interest rates as far as new loans are concerned”.

According to the latest data from the Central Bank, interest rates for mortgages over five years were 2.22% in August, up from 2.04% in August 2021 and 2.33% in 2019.

Banks offer financing up to 80% of the loan’s value for a first home with the possibility of repayment up to 35 years.

It is also possible to suspend the payment of instalments twice a year.

Banks also give loans for home renovations.

Financing up to 80% is offered for first home renovations and 70% for holiday home renovations and plot purchases.

Banks also lend for purchasing land for immediate construction with 50% financing and a duration of up to 15 years. They also offer to finance the acquisition of a second home.

The housing loan can cover 70% of the property’s purchase value for acquiring a second home with a duration of 25 years.

According to Central Bank data, housing loans to Cypriot residents reached €8.66 bln in August, from €8.65 bln in July, €8.21 bln in August 2021 and €8.52 bln in 2019.