Panayiotis Rougalas
A favorable landscape for Cypriot borrowers is taking shape in 2025, laying the groundwork for a strong year in new lending. The European Central Bank (ECB) Governing Council will begin the year with a monetary policy meeting next week, where a rate cut is widely anticipated. In parallel, the government has reintroduced the Housing Financial Assistance Scheme for young people and couples under 41, with enhanced criteria expected to attract significant demand.
2025 is starting on a positive note, thanks to four consecutive interest rate cuts in the second half of 2024, which have already made borrowing more affordable. Another ECB rate cut for 2025 appears almost certain, despite the potential implications of Trump’s return to the U.S. presidency. Economists have suggested that the ECB should consider how the policies of the new U.S. administration might impact Europe. Nonetheless, the ECB has signaled its intention to implement four additional rate cuts in 2025, citing a faster-than-expected slowdown in inflation despite a sluggish European economy.
Following last week’s January 2025 meeting, the deposit facility rate will fall below 3%, while the main refinancing operations rate and marginal lending facility rate will drop below 3.15% and 3.4%, respectively. These reductions—regardless of the existing disparity between lending and deposit rates in Cyprus—will enable borrowers to secure loans on more favorable terms compared to those offered in late 2023 and 2024. Overall, this "downhill trajectory" of rates benefits the European economy and borrowers, as it may stimulate consumption.
The government creates momentum
After facing criticism for the initial criteria of the Housing Financial Assistance Scheme for young people and couples under 41, the government revised the scheme last week, making it more attractive and effective.
Under the improved scheme, Cypriot borrowers can receive financial assistance ranging from €20,000 to €50,000, depending on their circumstances and family composition. Key amendments include increasing the maximum usable floor area of a house from 100m² to 150m², reducing the requirement for permanent owner-occupation from 10 years to five, raising the maximum gross family income threshold by €5,000 for all categories, and allowing participation for young couples even if one partner has reached 41 years of age at the time of application.
During the scheme's first phase, which ran from November 15 to December 31, 2024, 275 applications were received, of which 233 were deemed valid.
In addition to this scheme, other ongoing initiatives, such as the Build to Rent Scheme, housing programs for rural, mountainous, and disadvantaged areas, and the Renovate-Rent Scheme, are also expected to drive new lending activity.
Rate reductions begin to show results
In November 2024, the average interest rate for new mortgage lending across all banks in Cyprus fell slightly to 4.51% from 4.55% in October. The Bank of Cyprus had the highest rate at 5.20%, while the Housing Finance Corporation offered the lowest at 3.53%.
Ancoria Bank recorded a significant drop in rates, from 4.39% in October to 3.78% in November. Astrobank's rate stood at 4.85%, although no prior data were available. The National Bank of Greece (Cyprus) reported a home purchase rate of 4.76%, also without earlier data. Meanwhile, the Bank of Greece saw an increase, from 3.68% in October to 4.02%. Eurobank Cyprus registered a notable decline, from 5.11% to 4.54%.
For new business loans up to €1 million with a floating rate determined within a year, the average interest rate for all banks fell significantly to 5.1% in November, down from 5.58% in October. Banque SBA recorded the highest rate at 7.54%, while Ancoria Bank offered the lowest at 4.35%.
The Bank of Cyprus reduced its rate to 5.46% from 5.78%, while Alpha Bank’s rate dropped sharply from 9.04% in October to 5.25% in November. Ancoria Bank also saw a decrease, from 4.80% to 4.35%. The National Bank of Greece (Cyprus) raised its rate slightly, from 5.06% to 5.71%. Hellenic Bank lowered its rate to 4.55% from 4.94%, while Eurobank Cyprus cut its rate to 5.36% from 6.02%. Societe Generale Bank Cyprus experienced a minor increase, from 5.93% to 5.96%.
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