Sun, sea and Cyprus are all that a potential investor wants when they consider buying a property on the island. While most look to utilize hard-earned savings to purchase real estate, foreign nationals are increasingly looking to tap into the local banks and take out mortgages.
Here, at Anisad, we take a deep dive into how to get a mortgage and a slice of property paradise into the bargain. Getting a mortgage (housing loan) in whatever country you reside in can often be complicated. Cyprus is no different.
Documents for a Mortgage
Normally, as would happen in any EU country or the UK, the lender requires the borrower to provide documents, including proof of income, bank statements, an international passport, a resident permit, an application form, and bank statements for the previous six months.
A bank will also require a sale and purchase contract, prepayment confirmation for the property, title deed for a resale property, permission from local authorities to purchase property in Cyprus, proof of payment for stamp duty, a tax return for the last three years and a statement of loan payments for the previous three years. A bank will also check for creditworthiness.
Breakdown of Mortgage Process
If the property buyer is handling the process themselves, they will naturally have a lawyer to support the transactions. Here’s the breakdown of the mortgage process:
- Obtain preliminary approval: An investor applies to a bank via a questionnaire specifying the down payment amount. These details are assessed, and the bank informs the borrower the mortgage amount it can lend;
- Property options: Knowing the amount they can afford, a buyer begins property hunting;
- Hire a local notary: A notary is a government-backed department that oversees real estate transactions in Cyprus. They can confirm the legality of a transaction;
- Open a bank account to enable the transfer of money to a seller. This is usually at the same bank where the buyer plans to take out a mortgage;
- Reserve the property. This usually involves a deposit to the seller to remove the property from the market;
- Obtain purchase permission: Foreign nationals obtain a permit from the Council of Ministers of Cyprus;
- Down payment: An investor will make the first instalment from their own funds, and the contribution can be up to 50%.
- Before a mortgage is formally approved, the bank values the property. Once valued, the bank reviews the borrower’s application and determines whether or not to approve the mortgage. If approved, the borrower receives a formal mortgage offer detailing the terms and conditions of the loan.
- Sale and purchase contract. Buyer and seller sign a sale and purchase contract when the mortgage is approved. The transaction gets certified by a notary, and under their control, the rest of the amount is transferred to the seller’s account.
- Register ownership: The investor registers the property with the Land Department of Cyprus within two months of purchase.
Two points to remember:
- The process can take anything from several weeks to a number of months due to various factors;
- The valuation of the property may vary from what you have from the seller and the bank, which may give you less than you had expected.
Additional Costs To Consider
A property buyer must be prepared to face additional costs which flow with buying a property.
These include paying taxes. For example, they will have to pay between 3% transfer tax for every €85,000 on a resale property. This rises to 8% over €170,000.
The buyer will have to pay around 1% commission of the approved mortgage to the lending bank.
Other costs will include stamp duty, which has to be paid within 30 days of the property purchase. The duty is 0.20% for a property valued over €170,000.
Standard tax is presently 19% and paid when buying a new house or apartment in a new building.
Other property-related expenses may vary but can include a property valuation report (€300+);
document registration by a notary (€150+); annual property insurance, life insurance for the borrower and mortgage protection insurance.
Legal representation may well be a necessary cost, as well as the need to obtain a residence permit if it is conditional to obtaining a mortgage in Cyprus.
Mortgage Conditions
A mortgage rate for new property can range from 2%-4.5% and for resale properties between 5%-7.5%. Conditions of a mortgage in Cyprus will rest on:
Loan-to-value ratios: The maximum amount of a property’s value to be borrowed is usually between 70%- 80%. A borrower will need to deposit between 20%-30% of the property’s value.
Interest rates: Interest rates on mortgages in Cyprus can fluctuate on market conditions. The interest rate offered will also depend on various factors.
Repayment period: These can range from 5 to 30 years and the borrower will make monthly repayments, including the principal debt and the interest.
Lending banks
The main banks that offer mortgages to foreign nationals in Cyprus include, but not limited to AstroBank, Alpha Bank Cyprus, Bank of Cyprus, Cyprus Development Bank, Eurobank Cyprus and Hellenic Bank. Remember that conditions and fees will vary.
Conclusion
To ensure a stress-free process, it might be worth utilizing an independent lawyer or real estate agency service to help with the checks on your property. These will carry extra fees, but it is always better to be safe than sorry when purchasing property abroad.
