In 2007 the Central Bank of Cyprus reduced the amount that commercial banks in Cyprus were permitted to lend against the security of second homes to 60% of the property value. This step was taken in order to prevent commercial banks becoming over-exposed to the sector, following what the Central Bank saw as speculative demand. It was unpopular with commercial banks in Cyprus, who saw it as a restriction on their ability to compete against overseas banks.
The Central Bank of Cyprus is now confident that the speculative interest has waned, and that prices have stabilised. It has consequently relaxed the restriction on mortgages on second homes. Commercial banks may now lend up to 70% of the value of the property, as was the case prior to the 2007 tightening of the limit.
The lending limit for first homes is 80 percent of the property value.
This article appears in the Summer 2008 edition of Cyprus Business Headlines, published by Andreas Neocleous. To view the newsletter in its entirety click here.
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