Demand for Housing Loans Drops as Interest Rates Rise in Cyprus
Demand for housing loans in Cyprus has experienced a significant decline of nearly 40% in the first quarter of this year, largely due to rising interest rates, according to the Central Bank of Cyprus (CBC). The European Central Bank (ECB) recently increased interest rates by 0.25%, marking the seventh increase since July 2022, with the aim of curbing inflation. The ECB has now set the eurozone’s key interest rate at 3.75%.
Data released by the CBC indicates that new loans to households decreased by 37.3% in the first three months of 2023, falling to €308 million from €491 million in the same period last year. However, when compared to 2019, the data showed a 4.4% increase.
The CBC’s latest economic bulletin highlights that the decline in new home loans, also observed in the second and third quarters of 2022, may be attributed to the end of the government’s interest rate subsidy for housing loans and the gradual increase in interest rates by the ECB.
According to Cypriot banks surveyed by the CBC, the drop in demand for housing loans can be attributed to the upward trend in interest rates, declining consumer confidence, and, to a lesser extent, a less favorable outlook for the housing market.
In contrast, business loans issued in the first quarter of this year increased by 6.8% compared to the same period last year, reaching €448 million, up from €420 million. However, when compared to the pre-COVID period of 2019, there is a decrease of 19.2%.
The total amount of loans provided by banks to households and businesses, excluding restructurings, decreased to €756 million in the first quarter of 2023, down from €911 million in 2022 and €849 million in 2019.
The CBC notes that since July 2022, lending dynamics have slowed down due to increased uncertainty in the geopolitical and economic environment, more stringent lending criteria by banks, higher interest rates, and the negative impact of inflation on households’ real disposable income and businesses’ profit margins.
Moreover, the ongoing crises and the rising interest rate trend appear to be limiting new corporate borrowing for significant investment projects.
Central Bank data reveals that new loans granted by banks in 2022 amounted to €3.2 billion, marking a 10% increase compared to 2021. Compared to 2019, total loans show an increase of 8.4%.
Article Credits go to: Editorial (Cyprus Property News)
