Cyprus to submit ‘mortgage to rent’ scheme request to EU in June

Cypriot authorities are expected to submit a formal request to the EU’s Directorate General for Competition for the implementation of the European Commission’s ‘mortgage to rent’ scheme in June, the Cyprus News Agency (CNA) reported on Friday.

The scheme seeks to provide solutions to non-performing loans, both inside and outside banks, by safeguarding a main residence or the main business premises of small businesses.

Based on preliminary calculations, the contractual balance of the above two categories has a total value of €3 billion.

According to the CNA report, the Ministry of Finance is already engaged in discussions with the Directorate General for Competition, aiming to accelerate the approval process upon formal submission of the request.

The scheme entails a change for Kedipes, the state-owned asset entity set up to manage non-performing loans, real estate and other assets of the failed cooperative bank.

Kedipes will have to be transformed into a National Asset Management Company, which would allow it to manage the ‘mortgage to rent’ scheme.

The company already submitted its request for this change during the previous month.

Once the transformation request has been approved and implemented, Kedipes will acquire the collateral of the loans that fall under the scheme, as well as the ownership of the real estate linked to these loans.

Consequently, the company will be able to offer a repayment plan to the borrowers, so that they can maintain the use of their home or business while paying their rent.

Furthermore, banks and crest management companies will write off the amount that exceeds the value of the property if they choose to sell the collateral.

The agency also reported that the rent payment plan will have a duration of up to 15 years.

Moreover, after a five year period, the tenant will be able to submit a proposal for the acquisition of the property, whose ownership will be transferred to Kedipes.

The properties covered in the scheme will have a value of up to €350,000.

Although the balance of the applicable loans is estimated to be approximately €3 billion, the total value ​​of the collateral is estimated to be around € 2billion.

Nearly 50 per cent of these loans and collateral are already under Kedipes’ administration.

The agency reported that discussions on properties that were put down as collateral hint at a target value of between 65 per cent and 75 per cent of their market value.

At the same time, the implementation of the scheme will require amendments to the legal framework.

This includes the law on tenancy, which currently makes it very difficult to evict a tenant who is either unable or unwilling to pay their rent.

In addition, a change must also be made to the regulation concerning the non-payment of transfer fees when acquiring real estate by Kedipes, similar to the model used by commercial banks.

Although a Finance Ministry official told the House Finance Committee that there is no intention to apply income criteria, the imposition of income and property criteria as a condition for the approval of the scheme is being considered, after an intervention by the Directorate General for Competition.

It is expected that these criteria will be similar to the criteria used in the Estia scheme.

The same Finance Ministry official said that the government is leaning towards paying the rent for the most vulnerable borrowers.

In terms of the rent amount, initial plans provide for an annual rent amounting to approximately 3 per cent of the property’s market value.

For example, a property worth €200,000 would result in an annual rent of € 6,000, with the monthly figure standing at €500.

The agency stated that sources have indicated that EU officials are positive about Cyprus’ pending proposal.