Cyprus Mortgage Disaster

Trusty

1st May 2010

Dear Martin,

In April 2007, my wife and I purchased, off-plan, a 2 bedroom, duplex property, in Cliffside Gardens-Avgoulla Court No20, in Teresefanou, near Larnaca, , for 191,500 Cyprus Pounds. We paid a deposit of 38,300 Cyprus Pounds leaving a balance of 153,200 Cyprus Pounds (425,000 Swiss Francs), which we borrowed from the Alpha Bank.

The developer (Lefteris Livadhiotis & Sons) and the Alpha Bank recommended that we take the mortgage loan out in Swiss Francs as it was a stable currency. At no time was Euro mentioned during the negotiations.

The mortgage was setup the following year and 3 staged payments were made to the developer from December 2008. The final payment was due to the developer on completion.

On 26th March 2010, we were informed by letter that we could take possession any time after 8th April 2010. On opening we discovered the following:

Purchase price Euro 327,197.18
Deposit Euro 65,439.43
Alpha Loan CHF 425,000.00 (Euro 261,006.29)
Total received Euro 294,478.44
Balance Due Euro 32,718.74

Monthly payments would now be Euros 1,200.

With further enquiries, Alpha Bank informed us, that the bank loan had now been converted from Cyprus Pounds to Euros. We were both very confused as Euros were never mentioned before by the Developer or the Bank. Had they informed us of the Euro price at the onset we would have realized that the property was out of our affordable reach and would not have proceeded any further.

We cannot change the mortgage as we are only entitled to borrow 70% of the new purchase price.

Other outgoings (Euros per month):

· Life insurance cover for my wife and I 295
· House and Building Contents 50
· Building Maintenance 150

With the above expenditure and the increased mortgage payments will be extremely difficult to be made. In 5 years time the payments will have doubled and we will have expended all our funds and will have no alternative than to default.
We have thought of renting the property to help reduce our outgoings, however:
· It would need to be furnished (again reducing our funds);
· The income from rent is very low;
· The rental market is very difficult due to fewer visitors and more properties.
At present, we are here in Cyprus to take possession of the property. This has not been successful as it was not suitable for occupation and standards had not been met as per the contract. This cannot be rectified quickly and we return to the UK on 5th May 2010. We have refused to authorise the final payment temporarily, until the above has been rectified. Negotiations will take place 3rd May 2010 and there is a possibility that we will accrue 9% of the final payment if we do not come to an understanding.
The whole situation of having an exciting experience of owning a new home in Cyprus has turned into a nightmare of sleepless nights and continual worry.

Any help and advice would be appreciated.

getmore4less

I think you need to do a detailed analysis of the changes and exchange rates.

One early error was setting up borrowings in a different currency to earnings and debt this is very risky since you are subject to exchange rate movements every time ou move money.

It is related to Cyprus joining the euro

The Cyprus pound was replaced by the euro as official currency of the Republic of Cyprus on 1 January 2008 at the irrevocable fixed exchange rate of CYP 0.585274 per EUR 1.00

191500CYP = 327197EUR

THe price had not changed at the time of the change

DVardysShadow

You win some, you lose some. You took the loan in Swiss Francs, presumably because you thought you could only win as the Cyprus Pound was 'certain' to devalue. If it had worked out, you would be telling guests for years to come what a clever deal you did. But you were playing out of your league. People who play this game need to ensure they have the money to cover the potential losses besides the space in their wallets to keep the the profits.

You are left with a loss. You need to cut something - eg the life assurance - or sell on and take the loss.

Mands

Trusty wrote: »

Any help and advice would be appreciated.

Ouch, that's a mess.

If you can't agree a solution with the developers and the bank then they may get a judgement against you in Cyprus. That could allow them to look at your assets in the UK. If you bought off-plan three years ago then presumably you have a house in the UK which could be at risk.

From what you've said your very best bet would be to see if the developer would take the property back and keep your deposit. You'd be €60k out of pocket but you'd be protecting any other assets. To be clear: there is no obligation for them to do this, presumably they have a legally binding contract. The fact that there is an issue with the problem with the property sufficiently bad to prevent you taking it over might give you some leverage.

There are some local resources that might be of use:

http://easterncyprus.com/viewforum.php?f=8
http://easterncyprus.com/viewforum.php?f=41

Those links are to the Legal and the Property Developments forums on the Eastern Cyprus owners website. There's plenty of discussion about Tersefanou but, surprisingly, nothing about your development. Are there other owners taking possession now as well?

It would also be worth spending time on Nigel Howarth's site. He is a local property specialist as well as the Telegraph's Cyprus expert. He has a useful 'what if I can't pay my mortgage' piece that would be a place to start.

http://www.news.cyprus-property-buyers.com/2009/05/13/help-–-i-can’t-pay-the-mortgage/id=001361

Tomorrow is not a holiday in Cyprus. I'd strongly suggest doing as much research today and then getting face to face with the developers and then the bank tomorrow. Discuss what options are available. They won't want to take legal action so see what they are prepared to offer.

Once more: if you can walk away at the cost of your deposit then I'd say you've got off lightly.

Best of luck,
Mands

getmore4less

Had they informed us of the Euro price at the onset we would have realized that the property was out of our affordable reach and would not have proceeded any further.

price in EUR when you bought was 330361EUR (looking at historical rates)

price in EUR when the currency changed 327,197EUR

So 3164EUR cheaper.

getmore4less

Lookng a bit closer,

CYP -> CHF in April 2007 2.825

So 153200CYP -> 432790CHY so you lost something there.(425000CHF)

CYP -> EUR in April 2007 1.72512

So 15300CYP -> 264288EUR

March 2010

425000CHF -> 293343EUR

I would check you stage payment dates and exchange rates used the CHY has got stronger since 2007
http://uk.finance.yahoo.com/q/bc?s=CHFEUR=X&t=5y&l=on&z=m&q=l&c=

Looks like they also converted the loan to EUR Jan 2008 if that had been kept in CHY you would be better off.

Did they not tell you they had changed the loan

Check the numbers but if this is correct you may have a case since they had to change the purchace to EUR but not the loan unless there is something in the contract..


just noticed

Purchase price Euro 327,197.18
Deposit Euro 65,439.43
Alpha Loan CHF 425,000.00 (Euro 261,006.29)
Total received Euro 294,478.44
Balance Due Euro 32,718.74

thats 326445.72 so less than £1k short.

RecoveringAlcoholic

Currency speculation and property speculation in a foreign country......................



:eek:

BLT_2

Having carefully analsyed your situation, taken all the relevant paremeters into account and pondered the ramifications of the fluid currency situation in which you find yourself I have come to the following conclusion

You got F'd in the A :rotfl::rotfl:

Coeus

Damn everyone being a bit harsh. Here to help not to judge people. Unfortunately I can't as its way out of my depth.

Best of luck for resolving it,
Coeus.

SouthCoast

Have you raised your issues with the people who advised you to sign the contracts and followed their complaints procedures?

getmore4less

BLT wrote: »

Having carefully analsyed your situation, taken all the relevant paremeters into account and pondered the ramifications of the fluid currency situation in which you find yourself I have come to the following conclusion

You got F'd in the A :rotfl::rotfl:

If I have it right there is something wrong with the numbers shown in the first post that the OP missed.

The CHF has strenthened against the EUR and the conversion price into EUR was lower anyway, something does not add up.

We need the OP back to give more details and clarify.