The European Commission has approved a €50.6m government scheme providing partial debt write-off to distressed, socially vulnerable borrowers with loans secured by primary residences, it was announced on Friday.
The eligible loans had been granted under the support programme Government Housing Plans, introduced prior to Cyprus’ accession to the EU.
The programme was open to vulnerable and low-income people who did not own any property, as well as households with special social characteristics.
These loans had been granted through a state-owned intermediary, Housing Finance Corporation (HFC).
The estimated maximum budget of the scheme is around €50.6m.
Under the measure approved on Friday, eligible borrowers can choose between: full and immediate repayment of the outstanding loan, minus all unpaid interest payments as well as non-interest expenses other than the insurance premium; or the restructuring of the outstanding loan, resulting in a lower interest payment, longer repayment period, and/or changing the identities of the borrower or the guarantor.
Due to the nature of the loans, they were not eligible for the earlier primary residence protection scheme (ESTIA), which was approved in 2018.
The Commission assessed the measure and found that it constitutes indirect aid in favour of HFC, as it increases the amount of repayment HFC would receive from the borrowers.
The Commission found that the measure supports social objectives, is necessary, proportionate, and with sufficient safeguards to maintain competition (including burden-sharing arrangements that require HFC to bear a minimum part of the losses).
As a result, the Commission found the scheme to be compatible with EU State aid rules.