07.05.2022
The Cyprus News Agency (CNA) reported on Friday that the Cypriot authorities are to submit a formal request to the EU Competition Authority to implement the European Commission’s “mortgage for rent” scheme in June.
The scheme aims to provide non-performing loan solutions both inside and outside banks, by protecting the primary residence or primary commercial premises of small businesses.
According to preliminary calculations, the contractual balance of the above two categories has a total value of 3 billion euros.
According to the CNA report, the Treasury Department is already in discussions with the Directorate General of Competition to expedite the approval process once the request has been formally submitted.
The scheme entails a change for Kedipes, a state-owned asset structure set up to manage NPLs, real estate and other assets of the failed cooperative bank.
Kedipes will have to be transformed into a national asset management company, which will allow it to operate a mortgage-to-rent scheme.
The company had already filed a request for this change during the previous month.
Once the conversion request is approved and implemented, Kedipes will receive collateral for the loans eligible for the scheme, as well as ownership of the properties associated with those loans.
Consequently, the company will be able to offer borrowers a repayment plan so that they can continue to use their home or business while paying rent.
In addition, banks and property management companies will write off more than the value of the property if they decide to sell the collateral.
The agency also said that the term of payment of the rent will be up to 15 years.
Moreover, after five years, the tenant will be able to submit an offer to acquire the property, the ownership of which will pass to Kedips.
The properties included in the scheme will have a value of up to 350,000 euros.
While the balance of applicable loans is estimated at around €3 billion, the total value of the collateral is estimated at around €2 billion.
Nearly 50% of these loans and collaterals are already managed by Kedips.
The agency said discussions of the property that was pledged as collateral hinted at a target value of 65 to 75 percent of its market value.
At the same time, the implementation of the scheme will require changes in the legal framework.
This includes rent law, which currently makes it very difficult to evict a tenant who is either unable or unwilling to pay rent.
In addition, a change should be made to the provision on non-payment of transfer fees when purchasing Kedipes real estate, similar to the model used by commercial banks.
While a Treasury Department official told the House Finance Committee that there is no intention of applying income criteria, following the intervention of the Directorate General of Competition, consideration is being given to introducing income and estate criteria as a condition for the scheme’s approval.
These criteria are expected to be similar to those used in the Estia scheme.
The same Treasury official said the government is leaning towards paying rent for the most vulnerable borrowers.
In terms of rent, the original plans call for an annual rent of approximately 3 per cent of the market value of the property.
For example, a property valued at €200,000 would mean an annual rent of €6,000 and a monthly rent would be €500.
The agency said sources indicated EU officials were positive about the pending Cyprus proposal.
