Tough Times for New Homeowners as Rates Rise Over 5%
Tough times for new homeowners in Cyprus have arrived as housing loan interest rates rise over 5%, making homeownership increasingly difficult. Young couples looking to buy their first home are particularly affected. According to the Central Bank of Cyprus, interest rates have reached their highest level in a decade, creating additional financial burdens for potential buyers.
European Central Bank Efforts vs. Cypriot Bank Increases
Although the European Central Bank (ECB) has attempted to stabilize interest rates at 4.05% since September 2023, Cypriot banks continue to raise their rates. As a result, homebuyers face tough times as rates rise over 5%, making it harder to secure affordable housing loans.
Sharp Increase in Housing Loan Interest Rates
Recent data from the Central Bank of Cyprus reveals a 134.4% increase in the average home loan interest rate. In January 2022, the rate stood at 2.15%, but by early 2024, it had surged to 5.04%. This spike means that a €150,000 loan now costs €361.25 more per month, adding €4,335 in extra annual payments for new homeowners.
Impact on Existing Loan Holders
The rise in interest rates has also impacted existing homeowners, especially those with variable-rate mortgages. For instance, a €150,000 loan with a five-year repayment term saw its rate climb from 2.04% to 4.36%, resulting in an extra €290 in monthly payments.
Higher Borrowing Costs and Declining Household Loans
Due to the higher borrowing costs, household loans in Cyprus are on the decline. Between Q3 2022 and Q3 2023, total household loans fell from €12.11 billion to €11.13 billion, reflecting the financial strain on borrowers.
Property Prices Return to Pre-2013 Levels
Despite rising interest rates, property prices in Cyprus have returned to pre-2013 levels. The Housing Price Index for Q3 2023 is now close to 2012 figures, showing a recovery from past financial crises. This increase is due to:
- Limited new home supply
- Higher household income levels
- Rising foreign demand
- Increased construction costs from expensive building materials
Outlook for New Homeowners in Cyprus
With tough times for new homeowners as rates rise over 5%, the affordability of housing in Cyprus is becoming a growing concern. While property values continue to rise, borrowing costs remain a challenge. Moving forward, potential buyers must navigate high interest rates, stricter loan conditions, and increasing home prices to achieve homeownership.
Discover more property news and home advice by reading our other blogs on Properush.
Source: Cyprus Property News
