01.07.2022
Brussels has told Cyprus to “hold their horses” over a new attempt to throw another lifeline, a mortgage-to-rent scheme, to poor borrowers to help them keep their homes and small businesses.
Nicosia was preparing a mortgage-to-rent scheme to cover delinquent loans secured by basic housing and businesses, mainly SME premises, up to €350,000.
However, according to the finance ministry, Brussels has demanded that the scheme only apply to borrowers with houses worth less than 250,000 euros.
The European Commission’s Directorate-General for Competition (GDA) has rejected government plans to expand the scheme to cover loans secured by major businesses.
According to European Commission sources, based on living standards, market data and real estate values, Cyprus’ request for assistance to borrowers who have defaulted on loans secured by real estate in excess of 350,000 euros is not justified.
The Competition GD reportedly argued that it could not accept that a low-income family could own a house worth more than €350,000 and be eligible for government assistance.
As for the protection of professional property, the Brussels technocrats explained to the Ministry of Finance that this is contrary to the basic rules of state aid and fair competition.
They pointed out that the state could not subsidize loans to companies that defaulted on their payments, helping them stay in the market by competing with firms that agreed to their loan payments.
Given the failure, the MOF returns to the drawing board, corrects the scheme, and submits it for approval in July.
According to the original concept, the contract value of the scheme is 3 billion euros.
The Treasury’s request to the European Commission includes transforming the state-owned asset management company (KEDIPES), formerly Coop Bank, into a bad banking institution that will be given the authority to absorb toxic loans from other institutions.
If approved, KEDIPES will urge all banking and lending institutions to transfer overdue loans through the “mortgage for rent” scheme.
The beneficiaries will be people belonging to low income groups and pensioners, whether they have applied to join the ESTIA scheme or not.
The program will also include borrowers who defaulted on their mortgage but had their ESTIA application rejected because they had a low income.
KEDIPES plans to purchase mortgage-related properties at prices ranging from 50% to 60% of their current value. Thus, the debtors will retain possession of the property, but not its ownership. In return, outstanding debt will be written off. Borrowers will then be given the option to stay on the property by paying a rent of 2% or 3% of its market value. The rent will be adjusted annually based on a formula to be determined, and borrowers will be able to receive government assistance in the event of any increase they cannot meet.
This will entail a 15-year payment duration, while borrowers can submit a property purchase offer after five years.
