EU sceptical over ‘mortgage-to-rent’ scheme

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Brussels may not be keen on greenlighting the Mortgage-to-Rent scheme, the latest lifeline to defaulted borrowers, despite authorities declaring it is ready to go.

News site Stockwatch reported the scheme has been lingering in EU hallways since last summer when the Anastasiades administration submitted it for review.

Quoting sources close to the Directorate-General for Competition (GDA) of the European Commission, Stockwatch said that one of the fundamental parameters of the scheme violates the bloc’s legislation on state aid.

The GDA is concerned over the clause allowing KEDIPES, the state-funded asset management company operating the scheme, to buy asset-backed mortgages at 65% of their values from banks.

It believes the suggested percentage is state aid, according to sources, as the tens of millions of euros that will be disbursed for the purchase of the affected properties is taxpayers’ money.

In addition, the GDA appears to be concerned about what happens should the scheme fail, leaving the government entangled in large debt, possibly affecting public finances.

The Commission rejected an earlier request by the Republic to include non-performing loans secured by a main residence in the scheme, the market value of which would be up to €350,000.

Finally, the GDA accepted the market value to be limited to €250,000, pointing out that based on the cost of living in Cyprus, a residence worth €350,000 cannot concern vulnerable households.

KEDIPES and the Finance Ministry insist that for the scheme to be attractive to local banks, the coverage percentage should not drop below 60%.

Last month, the former Coop Bank turned bad bank, KEDIPES, unveiled the blueprint of the scheme, claiming that it would be ready to launch.

KEDIPES will oversee the scheme after Brussels urged Cypriot authorities to create a company dedicated to managing it.

The scheme will start once Cyprus receives the final approval from Brussels, which was considered a formality.

4,000 borrowers

Mortgage-to-rent will benefit some 4,000 distressed borrowers, with the cost estimated at €400 mln.

The plan is for KEDIPES to acquire the properties tied to the mortgage at 65% of their current value.

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

Beneficiaries are those on social benefits or deemed unviable for the state’s previous two schemes for defaulted borrowers — Estia and Oikia.

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

Beneficiaries will pay rent according to the price at which KEDIPES bought the property and the agreement’s timeframe.

The mortgage-to-rent agreement entails a minimum of 14-year payment duration, while borrowers could submit a proposal to acquire the property after five years.

Beneficiaries over 65 will not be given a specific timeframe to pay off their mortgage.