Mortgage-to-rent to get go ahead

1 min read

Brussels hinted at approval for the mortgage-to-rent scheme for distressed borrowers, urging Cypriot authorities to create a company dedicated to managing it.

The European Commission’s Directorate-General of Competition has instructed the Ministry of Finance to speed up procedures for establishing a company that manages the mortgage-to-rent scheme.

According to reports, it has instructed the Finance Ministry to have KEDIPES, the state-owned Asset Management Company, the former Coop Bank turned bad bank, establish a subsidiary.

The EU would like to see the state managing the scheme to boost transparency and access for supervisory authorities in Brussels.

Finance Ministry sources told news site Stockwatch it agrees with the Commission.

The mortgage-to-rent scheme is the government’s latest lifeline for some 4,000 distressed borrowers.

The cost of the scheme was estimated at €400 mln.

The plan is for KEDIPES to acquire the properties tied to the mortgage at 50 to 60% of their current value.

This way, the debtors would maintain occupancy of the property but not its ownership.

In exchange, the outstanding debt would be written off.

Borrowers will then be given the option to stay on the property, paying rent equal to 2% or 3% of its market value.

Rent will be adjusted annually based on a formula to be decided, while borrowers will have the option of state aid in case of any increases they cannot meet.

It entails a 15-year payment duration, while borrowers could submit a proposal to acquire the property after five years.

The value of the home must not exceed €250,000.

Nicosia is trying to convince authorities to allow flexibility so borrowers with a mortgage backed by their home worth up to €350,000 approved for other schemes, to switch to the mortgage-to-rent plan.

The Finance Ministry intends to set the scheme in motion before the government’s term ends in February.

The mortgage-to-rent scheme will cover a portfolio of €3 bln worth of loans, of which approximately €1.5 bln are already under KEDIPES’ management.

In September 2020, the government launched the ESTIA scheme subsidising borrowers with toxic mortgages to reduce Cyprus’ bad debt mountain.

Estia subsidises one-third of toxic borrowers’ monthly instalments after a loan restructures agreed upon with the bank.