President sends back foreclosures law, says it rewards loan defaulters

President Nicos Anastasiades on Friday referred the amended foreclosure law back to parliament on Friday, after lawmakers on November 10 passed the law to suspend the sale of mortgaged property until January 31, 2023.

The “Transfer and Mortgage of Real Estate (Amendment) (No. 4) Law of 2022” law reinstates the moratorium on mortgage foreclosures until January 31, 2023, due to the ongoing and intensifying economic and social impacts of the Covid-19 pandemic, as well as the war in Ukraine.

The proposed suspension concerns the debtor’s main residence, the estimated value of which does not exceed €350,000, the debtor’s business premises with an annual turnover not exceeding €750,000 and the debtor’s plot of land, the estimated value of which does not exceed €100,000.

In a letter to House Speaker Annita Demetriou, Anastasiades refers to the reasons for the referral and explains that the regulation as voted is essentially a total suspension of foreclosures, without targeting since foreclosures concerning business premises, regardless of value and loan amount, are suspended.

As noted, the reference in the law to companies with a turnover of up to €750,000, covers more than 85 per cent of Cypriot businesses, he added. Anastasiades also noted that as the law states, it excludes the majority plots of land, since a maximum value of €100,000 is set regardless of income and loan amount.

It is also noted that both the finance ministry and the central bank disagree with the suspension of sales for the fifth consecutive time – especially since the unprecedented efforts of those involved, including the Association of Credit Acquisition Companies & Credit Facility Managers, have said that they will not proceed with the sale of first homes up to €350,000 for cases of borrowers who really belong to the vulnerable groups of the population.

His letter also pointed out that at a time when deposits in the economy are shown to have increased, sales without income criteria are suspended, mainly rewarding defaulters and burdening citizens who consistently meet their repayments, adding that the wrong message is given to society that there is no obligation to repay loans, carrying the risk of increasing non-performing loans (NPLs). At the same time, it is reported that thousands of guarantors are put at increased risk.

He also noted the existence of government schemes such as Estia, Oikia for the protection of non-viable borrowers, until the implementation of the “rent versus installment” scheme.

“At the same time, the credibility of Cyprus abroad is affected, while discomfort is created at home in a very difficult period for the economy, and the positive course for further upgrading the creditworthiness of the Cypriot economy is called into question. As mentioned, there is a risk of an increase in borrowing costs for the Republic,” the letter states.

The president also mentions that the failure to implement an effective divestment framework will lead the banking system to a policy of stricter lending.

His letter states that the continued suspension of the legislative framework for divestments will lead to an increase in the provisions and losses of the loans of the former Cyprus Cooperative Bank that have been transferred to Hellenic Bank and fall under the guarantee scheme, with a consequent increase in Hellenic Bank’s compensation claims from Kedipes.

In closing, Anastasiades warned that the aforementioned consequences may also affect the state budget, due to the fact that the direct impact on the financial system brings adverse consequences to the state’s policy.