Mortgage-to-rent to get go ahead

Brussels hinted 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 sent in instructions to the Ministry of Finance to speed up procedures for the establishment of a company tasked to manage 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, to 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 on the matter.

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 EUR 400 mln.

The mortgage-to-rent 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 EUR 250,000.

Nicosia is trying to convince authorities to allow some flexibility so borrowers with a mortgage backed by their home worth up to EUR 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 EUR 3 bln worth of loans, of which approximately EUR 1.5 bln are already under KEDIPES’ management.

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

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