Cyprus: How are overseas property owners being affected?

What can expats learn from the Cyprus situation?

The past month has not been fun for expats and second home owners in Cyprus. An immediate economic meltdown might have been avoided, but the future there is still uncertain and day to day life hasn’t got any easier.

Richard Way, editor at the Overseas Guides Company, gives his full run down on what’s going on in the country.

By Richard Way

It’s an unfortunate situation in Cyprus and those affected by it will be the first to recommend the importance of taking measures to protect your assets when you become an expat or second home owner.

One of our readers, who owned a property in Cyprus for 10 years and recently returned from a two-month stay there, had this to say: “Nobody that we deal with, including well established Cypriots, has wanted payment other than in cash, as they don’t want money going through their banks.

“Meanwhile the Bank of Cyprus has cancelled all of the bank transfers that we have had in place for some time, for example to our pool cleaner and maintenance company, and will only consider reinstating them if we go into a branch with paperwork, which isn’t easy when we are in the UK.

“This must be a disaster for small businesses in Cyprus that rely on small monthly payments. Surprisingly, our standing order for electricity hasn’t been frozen!”

This first-hand account just shows that when you emigrate or buy property abroad, there are some things you can never prepare for – although the dire state of Cyprus’s finances was hardly a secret. However, there are arguably lessons to be learnt from this affair, which are applicable the world over.

A recent survey we carried out indicated that 50.5 per cent of people moving abroad will rely on a combination of pension(s) and investments for income, while 19.6 per cent will rely solely on a pension and 12.3 per cent solely on investments abroad or in the UK.

As with second home owners, this means a regular and constant transfer of funds between banks in the UK and around the world, often between offshore accounts or between two foreign banks.

This is one of the reasons financial planning is a must for anyone emigrating, and why a consultation with an independent financial advisor specialising in helping expats is always recommended. It’s best to do this well before your planned departure date. Keeping a more careful eye on the currency markets and economic stability of countries in general could save you money.

For example, you might typically have an annual review with a financial advisor, but in today’s climate a six-month or quarterly review should be considered. When it comes to your investments and pensions, review where your money is invested and in what currency, the type of fund or ‘vehicle’ it is in, its tax exposure and, crucially, check what compensation you would be eligible for as a British expat. As economic conditions change, it might be time to consider another investment option or tweaking some of the finer details.

If you live in the EU, spreading your savings between different banks with no more than €100,000 (the maximum guaranteed by the EU’s financial compensation scheme), or £85,000 in the UK, should bring some peace of mind. Where a bank is licensed will affect where compensation it paid.

Never has there been a more important time to seek independent financial advice and have your financial affairs in order, whether you are about to leave the UK or are already living abroad.

While the problems in Cyprus are deplorable, they have helped to bring that necessity into focus.