Purchasers, mainly from the UK, who invested in the property sector after securing housing loans, may now find themselves having trouble repaying their loan instalments.
Most of them did not have the financial ability to purchase, but they did at the prospect of making quick profit, believing that it was a good opportunity for them to buy by only contributing 10%-20% of the price and raising the balance through a housing loan. They didn’t examine the possibility of being unable to re-pay their loan in the event they wouldn’t make any income from renting or selling the property or even due to the fluctuation of the rate of exchange of the currency chosen. Now, they find themselves in a worse situation due to the economic crisis, the drop of the prices of the properties, the devaluation of the Sterling and the increase in the value of the Swiss Franc, being the currency chosen for their loan.
In the meantime, the properties purchased were built. They cannot be rented or sold, the loan instalments became due, the banks claim re-payment and the purchasers find themselves in despair. The property market is slightly moving through re-sales of certain properties sold at a price a lot lower than the purchase price. The drop of the value of the properties is up to 40% or even more making the situation worse, since the contribution paid is lost and the banks became aware that even the mortgages secured do not cover the loans granted. It seems that the current situation will not essentially change for the foreseeable time and the properties, even when sold, the net proceeds will be short and thus, the purchasers/debtors will remain responsible to the banks for their remaining debt.
The banks are seriously considering the situation and find themselves claiming the re-payment of the loans through legal proceedings instituted against the purchasers/debtors. They base their claims on the loan agreements signed and the assignment of the sale contracts to them. Moreover, they claim delivery of the properties and their claim is also addressed to the developers who gave them the so-called corporate guarantee to secure the purchasers’ loan. The existence or not of a separate title deed does not prevent the banks from claiming their money and it seems that the viable solution for the three parties concerned is their co-operation to sell the properties in an effort to minimise losses, particularly of the purchasers/debtors. Of course, things are not so easy but it is worth trying, since there are people who are in a position to buy, taking the opportunity of purchasing a permanent residence or a holiday house at a low price.
The drop of Sterling and the strong Swiss Franc are the two key factors which increase the losses of the purchasers/debtors, otherwise things would have been a bit better. No one can know for certain when the situation will change. A possible solution is the granting of an extension of the grace period for the re-payment of the loan instalments or re-scheduling the loans by lowering the amount of the instalments for the time being. The renting of the properties will also contribute to improving the financial ability of the purchasers/debtors to re-pay the loans.The banks do not have many alternatives and they could accept such arrangements, facilitating purchasers willing to co-operate to find a solution to this unfortunate situation.
The same applies for the developers co-operating with purchasers in their effort to re-sell the properties by signing a cancellation agreement and a new sale contract without claiming any cancellation fees, which in any event are illegally claimed. It is preferable and to the benefit of the developers to assist the purchasers re-sell their properties, since the loans will be settled and their liability will cease to exist.
The solution is to be found through the co-operation of the three parties concerned.
George Coucounis is an experienced lawyer practicing in Larnaca, Cyprus.
Educated at University College (London) and Thessaloniki University (Greece), George is fluent in English and has been practicing law in Cyprus since 1982.