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Our View: Populist debt-relief scheme Estia is doomed to failure

Estia allows households to benefit by having one third of their monthly loan repayment subsidised by the taxpayer

THE COUNCIL of ministers, in its last meeting, decided to put back the deadline for applications to the Estia Scheme to the end of December, because of the lack of interest. The authorities had estimated that some 10,000 housing loan defaulters would be eligible, to join the scheme, but so far only about five to six hundred have applied.

The lack of interest is astounding, considering borrowers would have their loan reduced by about 36 per cent of its value, with the taxpayer helping out and the bank taking a small hit. It is a grossly unjust scheme as it rewards people that refuse to honour their contractual obligations, not repaying their housing loans while hiding behind the law that protects the primary residence.

The scheme was designed to help the banks reduce their NPLs, which are still too high, offering loan discounts to defaulters, exploiting the protection of primary residence. It is quite clearly not working, causing concern to politicians that are inclined to blame the scheme and the banks rather than the people refusing to pay their loans.

The scheme should have had a more “humanist character” said the Greens. But how much more humanist than reducing loans by more than a third of their value could it have been? “Banks have the upper hand in this painful story for citizens,” said an Akel deputy, after the discussion of the matter at the House finance committee on Thursday. The Edek chief called for “radical changes” to the scheme, referring to excessive charges that the borrower should have been able to challenge in the courts.

First, the politicians claimed the lack of interest was because the application process was too complex, borrowers needing a large number of documents, even suggesting that help should be offered to applicants. Another explanation was that defaulters were wary of disclosing information about assets or income which the banks may have been unaware of or might have been subject to taxation.

Everyone seems to ignore the most plausible reason for the lack of interest in Estia. Defaulters want to carry on paying nothing towards their housing loans. Paying nothing is preferable to a monthly repayment, even if a 36 per cent discount is offered to them. As there are no legal consequences for refusing to pay – the primary residence cannot be foreclosed – what incentive do the defaulters have to repay a cent? This is what our parties have achieved with their populist legislation protecting the primary residence. Estia is doomed to failure, which is no bad thing as it is a deeply unfair and unjust scheme.

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