Mortgage Base Rates

Financial questions answered by Independent Financial Advisor Mark Nowell

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Mortgage Base Rates

#1 Post by Scunner » 21 Apr 2009 11:22

Hi Mark,

I have a foreign currency mortgage with Laiki Bank (Swiss Francs). On set-up of the mortgage the interest was defined as a Base Rate of 2% plus the monthly LIBOR Rate. Thankfully, the LIBOR Rate has dropped over the last 5 months or so which is helping to offset the negative impact of the fall in Sterling.

However, I have just received a letter from Laiki advising they are increasing my Base Rate by 0.25% to 2.25%. They explain this is due to the increase cost of borrowing money - I thought that was what the LIBOR Rate was for - and the increased risk of bad debt due to the prolonged global crisis. They have the audacity to explain that since the LIBOR Rate has fallen I probably won't even notice the increase. Sounds like they want the best of both worlds i.e. the LIBOR Rate goes up and I cover the increased costs; if it comes down they'll grab a piece of the savings.

I've checked the small print of my mortgage agreement and to my dismay it looks as though they can alter the Base Rate as they see fit. Do you know if the other Cypriot banks are adopting this approach?



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Re: Mortgage Base Rates

#2 Post by Scott213 » 03 Mar 2010 16:07

I am in a similar situation with correspondence from the Alpha Bank saying they are increasing their bank rate - not the libor which obviously I understand can fluctuate. I didn't even think about checking a clause stating that the banks margin could be increased as I thought this was just too immoral for bank's in the EU to practice. Surely this must go against the EU's fair banking code and shouldn't the solicitor who signed the document for me without showing it to me first be able to assist me?? -although I did give them POA and of course do not hold them responsible but the banks. I would like to make an official complaint to the European Union Bank. Does anyone know where I can write to? I think it is the responsibility of all homeowners in this situation to make complaints and bring it to the attention of the media. It is such a shame as I know many people will not be able to afford their mortgages and therefore surely the banks will be out of pocket?? Any advice, comments, hints, tips, plans or insights VERY much appreciated.
p.s. Alpha has also advised me they are now going to charge me everytime they reply to an email enquiry - is this lawful?

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Re: Mortgage Base Rates

#3 Post by Nigel Howarth » 03 Mar 2010 17:48

Hi Scott & welcome to the forum.

You can make complaints to the EU through its website at

Unfortunately, all banks in Cyprus seem to operate in the same way. Many people have contacted my about 'problems' with their mortgage, most of whom took out loans in CHF because of the low interest rates. Some can no longer afford to keep up they repayments and some have more serious problems as a result of losing their jobs.

People often fail to appreciate that business practices and business ethics in Cyprus are somewhat different to what you might expect in a civilised country.

The banks here are on to a win-win situation. Many buyers have been granted mortgages to buy homes by the bank that loaned the developer or the landowner the money in the first place.
  • They receive mortgage payments from developers and landowners.

    They receive mortgage payments from property buyers.

    If developers, landowners or property buyers fail to repay their mortgages, the bank has all their mortgage repayments to date plus it can seize and auction the assets of the party in default to recover its debt!
In July last year a senior banking source told the Cyprus Mail “We have been prudent in our lending” – I think that was something of an understatement!

I don't know if you were aware, but last year the Cyprus Property Action Group (CPAG) organised a demonstration against the unethical lending practices of the Cyprus banks.

The more fuss and complaints you make may (eventually) result the Cyprus banks taking a more professional approach.


Nigel Howarth
Independent information & advice for Cyprus property buyers
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Re: Mortgage Base Rates

#4 Post by Scott213 » 03 Mar 2010 19:02

Thank you so much for your reply Nigel. Your post has been both helpful and informative and I intend to post the link to complain to the EU in many other forums - like you say the more complaints hopefully the banks will be forced to conduct their lending in a more ethical manner!

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Re: Mortgage Base Rates

#5 Post by rollwithit » 06 Mar 2010 13:57

Hi Scott,
I am also in the same position as yourself. However my mortgage rate increased last July and I received a similar letter as yourself.
I was also told that I probably wouldnt see any difference in the amount as it had gone down (in line with the Lobor base rate) previous months, which it had. My original monthly payments are around the same as what I am paying now (with the increase).
I also checked the details of my mortgage conditions and there are a number of clauses in there which basically gives them the right to increase the rate due to 'market conditions'.
I have put this down to my own fault for not checking the small print before signing. Many UK banks also offer a variable rate and they have also increased their variable rate even though the UK central bank's base rate is below 1%.

I complained to my bank at the time but they were not having any of it. I thought my loan was fixed for 5 years in line with the Libor as that is what it looked like, but when you read the small print they have the power to do this. You could look at the Cyprus Contract Law, as there may be a case for unfair contracts here. You can find a copy of which on the internet or maybe Nigel can advise you here. You may have another option here as I am studying it myself at the moment.
On another point its interesting that you got a letter only recently and I got mine over a year ago! Are there different rules for different customers? Let me know how you get on.


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Variable-rate mortgage

#6 Post by torymathis » 18 Nov 2010 14:32

i was not so aware of that but after getting information from my cousin who works at a gov bank...he said taht A variable rate mortgage or floating rate mortgage is a mortgage loan where the interest rate varies to reflect market conditions. The interest rate will normally vary with changes to the base rate of the central bank and reflects changing costs on the credit markets. This method of variation directly linked to underlying costs benefits lenders and ensures a profit by passing the interest rate risk to the borrower. The borrower benefits from reduced margins to the underlying cost of borrowing compared to fixed or capped rate mortgages. The lender must hedge against potential interest rate changes; the borrower benefits if the interest rate falls and loses out if interest rates rise. The loan may be offered at the lender's standard variable rate/base rate. There may be a direct and legally defined link to the underlying index but where the lender offers no specific link to the underlying market of index they can choose to increase or decrease at their discretion. In many countries variable rate mortgages are the standard method of lending and are simply referred to as mortgages. In the US they are referred to as adjustable rate mortgages.

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