ESTIA mortgage rescue scheme to get green light from Brussels

The European Commission is expected to approve the government’s scheme for homeowners who have defaulted on their mortgage, dubbed ESTIA (Home), without significant alterations in November.

Finance Minister Harris Georgiades said that Brussels has given clear indications, that it will approve the scheme without any alterations to its essence and basic principles, including the scheme’s intention to cover all loan defaulters who mortgaged their first home worth up to EUR 350,000.

Presenting the government’s budget plan for 2019, he said that the criteria of the ESTIA scheme was approved by the cabinet but has yet to be finalised.

“As the plan involves state aid, it has been submitted to the competent Directorate-General for Competition, and the final drafting of the criteria for the project will be determined by the European Commission,” Georgiades said.

According to Georgiades, the next move depends on the Cypriot authorities as the preliminary submission of the project has already taken place with the EU and the dialogue between the competent European authority and the Cypriot authorities is in progress.

The dialogue, he said, is expected to end within the week, and then after acquiring cabinet’s final approval, it will be sent back to the EU officially, with the final approval from Brussels expected sometime in November.

“The scheme is not perfect and there cannot be such a thing as a perfect scheme, with no question marks, no moral dilemmas or moral dangers. But it is a necessary plan to tackle the most difficult class of NPLs, those who have as collateral homes worth up to EUR 350,000,” said Georgiades. The scheme has come under criticism from the opposition parties and employers and perceived with scepticism by the IMF warned of the moral risk presented by the high ceiling on income criteria and the value of the mortgaged property.

As things stand, the scheme aims to finance one-third of the monthly instalments of defaulted borrowers who have mortgaged their primary home, worth up to EUR 350,000 and earn an income of up to EUR 50,000.

According to figures quoted by Georgiades, the value of all loans in the banking system backed by the borrower’s main home is EUR 13.9 bln.

The value of loans with a principal residence as collateral of up to EUR 350,000 is EUR 8.7 bln of which 40%, EUR 3.5 bln, are non-performing.

Georgiades said that these are also the most difficult part of non-performing loans and amount to 15,000.

The government expects to fund the scheme with EUR 30 mln annually over the next 25 years.