The Cyprus dream becomes a nightmare

Briton Tim Hudgell bought two luxury apartments on the holiday island...now he’s battling banks after it all went horribly wrong

Paradise lost: Tim Hudgell bought off-plan property in Cyprus ... and nothing went to plan afterwards (Ash Communications)

Tim Hudgell’s story is the stuff of every overseas property buyer’s worst nightmare. Tim agreed to buy two off-plan apartments in Cyprus for £109,000 each in 2006. The sales brochures were suitably glossy with promises of luxury clubhouses, saunas, jacuzzis and even swim-to bars, every inch the Mediterranean ideal.

However, alarm bells started to ring the day Tim signed on the dotted line: “I flew out to the development to sign the contracts and a lot of the promised facilities were either half-finished or not even started.

“I raised my concerns but was told that I if I didn’t go ahead with the transaction then the deal I had would be defunct.”

So Tim signed the paperwork for the property and, unbeknown to him at the time, entered a world of financial pain. “Not long after the documents had been signed and sealed, I started to realise problems didn’t just relate to the completion of the development,” he said.

The promised facilities had still only part materialised or not been completed as the financial crisis hit home and many developers in Cyprus either went to the wall or were taken over by the country’s troubled banks. Of even greater concern to Tim and his fellow villa and apartment owners, however, was the home loans they were persuaded to take out in order to purchase their property.

Many of the mortgages were arranged in Swiss francs because this was deemed a safer and more stable currency – from the perspective of the bank and the developer, of course. But the pegging of Cypriot mortgages to the Swiss franc had a quite disastrous effect as the eurozone countries foundered and the single currency took a battering.

“My mortgage payments have shot up, more than doubling at the height of the crisis,” Tim explained. “I was paying nearly £5,000 a month in repayments as the Swiss franc soared in value.”

At his wits’ end, trying to reschedule his debt with the banks to no avail, Tim has joined with other owners in Cyprus in launching a legal action, trying in effect to get the loan agreements set aside on the grounds that they were not properly drawn up in the first place.

“I feel I have been mis-sold from the very beginning, first by developers promising the Earth and not delivering and now by the banks. They want a total of £400,000 from me and I have decided not to pay them any more and institute my own proceedings in the Cypriot courts.”

Tim is far from alone. Judicare, a specialist in recovering overseas property investments, is handling a host of legal cases in the Cypriot courts on behalf of clients. It estimates that there are between 20,000 and 30,000 British buyers on the island with mortgages linked to the runaway Swiss franc.

“We have received trial dates for 40 cases in the Cypriot courts but this is the tip of the iceberg – there are many more buyers either labouring to pay huge sums in repayments or defaulting on their loans,” said Neal Heaney, managing director of Judicare (and an ex-Premier League footballer with Arsenal, Manchester City and Southampton).

But he has a word of warning for people looking to bury their heads in the sand and simply hope their problems disppear: “Because Cyprus is part of the EU, they can apply to the British courts for possession orders against the property of Britons to meet debts in Cyprus. This means people can’t simply ignore their debts and hope they go away, as they could conceivably lose their home in the UK as a result.”

Since Judicare started the ball rolling in Cypriot courts, the banks’ attitudes towards Britons in financial difficulty seem to have changed.

“We are starting to see some lenders trying to restructure loans with property owners as they no doubt fear being embroiled in a long and potentially losing case,” said Mr Heaney.

More generally, Cyprus’s reputation with foreign buyers has taken a battering in recent years. There are ongoing disputes over property ownership in the Turkish-occupied north of the island, as well as the continuing crisis in the nation’s banking sector, which has severely damaged confidence among investors. In addition, there are continued problems over title deeds, with many owners not being issued with legal documents even years after handing over their money.

The likelihood of a raft of court cases between banks, developers and owners over the legality of Swiss franc mortgages is only going to further erode Cyprus’s reputation, according to Richard Way, editor of the Overseas Guides Company. He said: “In Cyprus, title deeds are issued separately. In the wake of the title deeds situation and refinancing of projects by developers, buyers are advised to get their bank to protect their money while they wait for deeds to be issued. There are positive movements being made to smooth out ownership of property in Cyprus, including an amnesty law, but it takes time.”

However, Mr Way said these problems shouldn’t put off potential buyers in Cyprus – just make sure you get the legal i’s dotted and t’s crossed before handing over cash, and be wary of non-euro mortgages. He also pointed to the attractions that Cyprus still has for British buyers. In the right spots, the rental market can be practically year-round, flights are easy and cheap from the UK, and Cyprus is a conveniently located EU destination, close to the investment money of the Middle East.