Cyprus Property: Stricter Legislation for Lenders Increases Borrower Protection
Cyprus recently implemented an EU Directive, introducing a number of regulations and obligations upon lenders and credit institutions which significantly protects borrower’s interests when granting of housing loans.
The legislation governs loan agreements that are secured with mortgages or similar securities relating to immovable properties used for housing purposes. The framework protects borrowers as long as they are individual consumers acting outside of any commercial or business related activities.
Going forward, the framework requires lenders to:
- Implement practices which must be followed prior to the signing of the loan agreement.
- Evaluate the creditworthiness of the borrower before granting the loan, taking into account all the relevant factors to establish whether the borrower is in a position to meet his financial responsibilities as per the loan agreement.
- Inform borrowers on the total annual percentage charge and how it is assessed, on the gross credit cost and the total amount payable, including interest rate.
- Ensure that the institutions internal and external valuators who conduct the property valuations are professionally qualified and are in a position to prepare an unbiased and objective evaluation of any loan applications.
- Not cancel or amend a loan agreement to the detriment of the consumer after signing it.
- Must carry out an evaluation based on the borrower’s income and expenditure: the value of the property cannot be the main basis upon which the evaluation of the borrower’s creditworthiness is established, even if it is higher than the loan amount.
Foreign Currency Loans
In respect of a loan in a foreign currency, the lenders now should obtain sufficient information regarding the knowledge and experience of the borrower relating to the exchange rate risk. The lender should then execute the agreement accordingly. If the borrower repays the loan amount earlier than the agreed timeframe, the imposed maintenance fees cannot exceed over 1.25% of the reduction or the amount of €100, whichever is lower.
Time frames of Reasonable Tolerance & Repayment Terms
The legislation also regulates the borrower’s default in the payment of his installments and the settlement procedure for the amounts owed, requiring the lender to grant a period of reasonable tolerance before taking the settlement process and the forced sale procedure to collect the debt. It also includes provisions and the means of calculating the imposed fees if the borrow fails to meet his obligations.
In the event of a forced sale or settlement procedure of a property where a balance of the debt is still outstanding, unreasonable repayment terms cannot be imposed which will not allow the borrower to have income to cover basic living and family expenses.