CYPRUS’S banks have tightened their standards for mortgages in the third quarter of the year and plan to keep them unchanged in the fourth quarter, as demand for new loans drops along with home prices, the Central Bank of Cyprus said.
According to the latest central bank data, home prices fell 0.9 per cent in the second quarter of this year compared to the one before and 4.9 per cent year-on-year.
Home prices fell mainly in coastal areas, where non-Cypriot buyers buy holiday homes. As a result of the bank’s tighter standards, low income households may find it more difficult than before to benefit from lower home prices.
The fall in prices was for the sixth consecutive quarter since the fourth quarter of 2009, while net demand for household mortgages fell for a fifth consecutive quarter since the second quarter of 2010.
Paphos was hit the hardest by the dropping prices. In the second quarter, they fell on average 2.3 per cent compared to the quarter before and almost 13 per cent compared to the second quarter of 2010, according to the Central Bank. Home prices in Nicosia fell marginally in the second quarter of 2011 compared to the first quarter and rose 0.5 per cent compared to the respective quarter of 2010.
Home prices fell on a quarterly basis 1.6 per cent the Famagusta area, 1.5 per cent in Larnaca and less than 1 per cent in Limassol, while on a year to year basis, the drop was 5.9 per cent, 8.2 per cent and 4.1 per cent, according to the Central Bank.
In the second quarter of the year, prices for apartments fell island-wide 0.9 per cent compared to the previous three-month period of this year and 6.6 per cent compared to the second quarter of 2010. The respective drop in house prices was 0.9 per cent and 3.6 per cent.
Home prices could have dropped even further, if the banks, which are currently bracing for further losses in the value of Greek bonds they are holding, pressed their client builder companies to sell at lower prices in order to find funds to service their loans in arrears which are on the rise, economist and ex-banker Symeon Matsis said.
“The banks are not putting pressure on construction companies as they fear this would have further side effects,” Matsis told the Sunday mail in an interview. “If the companies were pressed into selling their assets, this would cause a drop in the value of collaterals,” he said.
In the third quarter, banks also introduced stricter standards for corporate lending and consumer credit which they plan to further tighten in the fourth quarter, the central bank said.
Based on expectations of financial institutions that participated in the bank lending survey, “standards are expected to become stricter compared to what was observed in the past three quarters,” the Central Bank said.
“As expected, demand for corporate loans fell in the third quarter. Net demand for corporate loans, according to the banks’ expectations, is expected to drop in the next quarter compared to the third quarter,” the survey said.
“Demand for loans from households continued to decline in the third quarter. Demand for consumer and other lending continued to fall for a sixth consecutive quarter,” the Central Bank said in its survey.
