Freeze on foreclosures ‘threat to recovery’

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Finance Minister Constantinos Petrides will ask President Nicos Anastasiades to return the House’s decision to extend a foreclosure freeze, arguing that Cyprus’s credibility among foreign investors and creditors will be shaken.

“Unfortunately, the passing of the proposal to extend a freeze on foreclosures does not leave any room for the Finance Ministry other than to recommend to the President of the Republic to exercise the powers granted to him by the Constitution to refer back the voted law,” said Petrides in a statement on Friday.

The comments followed the House approval on Thursday to extend the foreclosure freeze until the end of January 2023, evoking the tough financial climate created by the coronavirus pandemic and the Ukraine war.

It is the latest in a series of such extensions, with the initial freeze on foreclosures dating back to August 2021, which was imposed as borrowers came under pressure from COVID-19 lockdowns.

The last extension expired at the end of October.

Petrides said that the government is disappointed with the MPs’ decision as it delivers a blow to the economy, hindering efforts to overcome the financial crisis.

“Such practices harm the creditworthiness of Cyprus vis-à-vis the rating agencies.

“As a government, we will do what is possible to mitigate the negative consequences”.

He described parliament’s decision as an unnecessary development after the commitment given by credit acquisition companies not to sell off first homes.

He said this is a development which does not have a substantial impact but creates negative consequences given that the adoption of the law is tied to the disbursement of the first instalment from the Recovery Fund.

“Foreclosures are suspended without income or other criteria, thus rewarding strategic defaulters and burdening their debts on compliant citizens,” said Petrides.

Opposition parties blamed the government for not presenting an alternative to tackle the issue of non-performing loans.

The extension was voted by 34 votes of MPs belonging to opposition parties, with 12 ruling DISY MPs against it.

First homes

First homes worth up to €350,000, commercial premises with a value of up to €750,000 and plots of land worth €100,000 will not be going under the hammer until after January.

MPs were not convinced by a commitment by banks and debt-acquiring companies that they would not be auctioning any main residencies.

The Finance Minister added that the law governing foreclosures would be in effect alongside a protection framework.

He referred to mediation and insolvency mechanisms protecting defaulters and government plans to help people who default on their mortgages, such as the ESTIA scheme and a mortgage-to-rent scheme promoted by the government.

The mortgage-to-rent scheme will cover all non-viable households who have applied for the ESTIA scheme but whose income is insufficient to keep up with payments.

Under the envisioned mortgage-to-rent scheme, households will pay a low rent for five years, after which they can buy their residence.

ESTIA was launched in September 2020 to reduce Cyprus’ bad debt mountain.

It saw the state subsidising one-third of toxic borrowers’ monthly instalments after a loan restructure agreed with the lender.

However, the scheme was declared a failure due to low participation, as only 20% of applications submitted were approved.