Government to introduce new schemes after ESTIA fails

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Cyprus is reviewing ways to enable distressed borrowers to keep their homes after its ESTIA scheme for toxic mortgages has failed to generate interest with only 10% of loan defaulters applying for state aid.

ESTIA was launched in September in an attempt to reduce Cyprus’ bad debt mountain.

However, out of the approximately 15,000 households that were expected to apply for aid in order to protect their first home, only 1,600 applications have so far been submitted before the 31 December deadline.

According to website Stockwatch, the government is looking at putting forward a social coherence package to help distressed borrowers belonging to vulnerable groups who are at risk of losing their home.

The administration is viewing alternatives while also looking for ways to bail out other categories of borrowers who, due to the criteria, could not be included in the ESTIA plan.

Finance Ministry technocrats and the Labour Ministry are reportedly conducting exercises on how to provide alternatives to borrowers who have secured a first home loan but are not eligible for ESTIA.

According to Stockwatch, acquired from senior officials in the ministries of finance, labour and interior suggest they may promote a first-home social protection package to the cabinet that vulnerable groups of borrowers do not lose their first home.

The government is considering granting vulnerable borrowers the right to reside in their home which can be foreclosed by the bank but to pay rent as a tenant on the basis of their real income.

In these cases, the title deed of the property will be transferred to the state, or to the banking institution involved.

Vulnerable borrowers will also be offered the opportunity to move with state support to another home of less value than their existing privately-owned home and to pay either a reduced rent based on income.

Authorities are also contemplating whether borrowers who retain their first home by paying rent could be entitled to repurchase it, should their financial situation improve.

There are also plans to push through a new housing policy to give vulnerable groups who lose their first home state-owned housing facilities with low rent.

Meanwhile, the cabinet appears adamant at not letting strategic defaulters take advantage of any scheme that will be tabled.

The same applies to banks who had high expectations for the state plan, expecting that it would reduce their non-performing loans by some €3.4 bln.

They now appear willing to exhaust all legal tools available to crack down on strategic defaulters.

The ESTIA scheme covers borrowers that had non-performing loans up until September 30, 2017. The plan only covers vulnerable borrowers whose market value of their home is below €350,000.