Cyprus will request EC permission to implement mortage-to-rent scheme

Cypriot authorities plan to submit in June an official request to the European Commission for the implementation of a mortgage-to-rent scheme, aiming to address non-performing loans collateralized by primary residences and SME business premises with an estimated contractual value of €3 billion.

Sources told CNA that consultations between Cyprus and the Commission’s Directorate-General for Competition (DG Comp) are well underway aiming to expedite the process that would enable the transformation of the state-owned Asset Management Company (KEDIPES) to a nationwide AMG which will in turn launch the mortgage-to-rent scheme.

The scheme will cover non-performing loans collateralized by primary residences and mainly SME business premises with a value up to €350,000.

When the scheme is approved, KEDIPES will begin contacting banks and credit acquiring companies in order to implement the mortgage-to-rent scheme.

The consultations concern the change in KEDIPES’ mandate which under the framework approved by DG Comp in 2018 is limited only to the management of non-performing assets of the former Cyprus Cooperative Bank.

In Cyprus’ stability program 2022 – 2025 submitted to the European Commission, the Finance Ministry said it was examining the introduction of one more element in the current framework for the resolution of remaining NPLs which will address “the socially sensitive segment of NPLs collateralized by primary residences and SME primary business premises.”

“The proposed government policy, namely a Mortgage to Rent Scheme, will be undertaken by the state-owned KEDIPES, which currently manages the bad assets of the former Cyprus Cooperative Bank and is the largest asset manager in Cyprus,” the Ministry added, noting that under the Mortgage to Rent scheme, KEDIPES will acquire on market terms primary residences or primary business premises which secure NPLs and rent these properties to debtors.

“Therefore, the debtors would maintain occupancy of the property but not its ownership. In exchange, the outstanding debt would be written off,” it added.

According to the same sources, the scheme will entail a 15-year payment duration, while borrowers could submit a proposal to acquire the property after five years. Furthermore, the annual rent is envisaged to amount to around 3% of property value.

While the contractual value of eligible loans is estimated at €3 billion, the value of the properties collateralizing these loans are estimated at €2 billion, with approximately 50% held by KEDIPES. The same sources said the transfer price being discussed ranges between 65% and 75% of the current value.

A Finance Ministry official told the parliamentary committee of Finance and Budgetary Affairs that the government intends to pay the rent of the most vulnerable borrowers who will opt for the scheme.