A new draft bill introduced by DIKO MPs Zacharias Koulias and Christos Orphanides is set to change the landscape for guarantors of property loans in Cyprus. The bill aims to provide robust safeguards to individuals who guarantee property loans, ensuring they are not prematurely targeted by lenders.
The key provision of the bill requires lenders to first pursue all legal avenues against the primary borrower and the mortgaged asset itself before they can make any claims on the guarantor. This is intended to reinforce fairness and ensure guarantors are protected from immediate action when they have not directly defaulted.
Specifically, before seeking repayment from the guarantor, lenders must:
Only after these steps are fully completed would action against guarantors be permissible.
The bill further limits guarantors’ liabilities once a mortgaged property has been sold or repossessed by the lender. In these scenarios, guarantors will only be held responsible up to the amount stipulated in the original guarantee agreement.
If the loan agreement lacks a clear cap or if the loan is tied to a current account guaranteed by the guarantor, the bill mandates deductions of:
This ensures guarantors are not unfairly burdened with debt beyond what has already been covered.
According to the bill’s sponsors, guarantors often face significant financial hardships without any benefit from the loan. These include loss of personal rights, jeopardised personal assets, reduced borrowing capacity, and challenges in accessing their own credit.
Lenders and credit institutions, including so-called “vulture funds,” currently hold far more power, leaving guarantors vulnerable to prolonged financial exposure—even after the secured assets have been sold or the debt fully repaid.
This bill seeks to plug these gaps and establish a fairer balance, reflecting concerns raised in discussions like those found on Cyprus Property Buyers News.
If approved, the new legislation will require banks and credit institutions operating in Cyprus to prioritise enforcement against borrowers and the property itself before approaching guarantors. This is likely to boost confidence among those considering becoming guarantors and reduce the risk of undue financial distress.
However, it will also impose stricter compliance obligations on financial entities, potentially affecting how loans are structured and enforced within the property market.
We expect this proposal will trigger robust debates among stakeholders across the real estate and financial sectors in the coming months.
For those exploring the property market under these evolving conditions, whether seeking affordable apartments for sale in Cyprus or considering auction properties in Cyprus, staying informed on legal protections is crucial.
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