Challenging Period for New Homeowners with Escalating Interest Rates.

Owning a house in Cyprus has become increasingly challenging, particularly for young couples seeking their first home. This is due to a significant rise in housing loan interest rates, which have surpassed 5%, the highest in a decade, as reported by the Central Bank of Cyprus.

Despite the European Central Bank’s efforts to stabilize rates at 4.05% since September 2023, Cypriot banks continue to hike their rates, adding more pressure on households. The unexpected global inflation spike last year has led to predictions of quicker-than-anticipated rate cuts by central banks, including a forecasted 150-175 basis point reduction by the Federal Reserve, according to Craig Erlam from OANDA.

Central Bank data shows a 134.4% increase in the average interest rate on new home loans in Cyprus, rising from 2.15% in January 2022 to 5.04%. This equates to a significant financial burden for prospective homeowners, with additional monthly charges on a €150,000 loan amounting to €361.25, or €4,335 annually.

Those with existing non-fixed interest rate loans are also affected. For example, a €150,000 loan with a repayment term over five years has seen an interest rate increase from 2.04% to 4.36%, resulting in extra monthly charges of €290.

Furthermore, there has been a substantial rise in interest rates for loans with shorter repayment schedules. This spike in borrowing costs is likely contributing to the decline in household loans in Cyprus, which fell from €12.11 billion to €11.13 billion between the third quarters of 2022 and 2023.

Meanwhile, Cyprus’s property prices are returning to levels seen before 2013, following significant increases in recent years. The housing price index for the third quarter of 2023 is close to the 2012 level, indicating a recovery from the lows experienced during the financial and banking crisis. This recovery in property prices can be attributed to a stable supply of new homes, improved income categories, and increased foreign demand, alongside higher construction costs due to the revaluation of construction materials.

Source: Cyprus Property News

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