Filenews 29 January 2023 - by Eleftheria Paizanou
Pending the Commission's official response to the Rent Against Instalment plan, the Ministry of Finance, banks and credit-acquiring companies are continuing the work so that the plan, which is estimated to be a lifeline for thousands of borrowers, once it gets the green light, can be implemented immediately.
The Cypriot authorities are confident that the Directorate-General for Competition of the European Commission will give the green light, as during the consultations that have preceded it is considered that all issues have been settled and the required clarifications have been provided. A competent source told "F" that all procedures have been defined and, as soon as the Republic receives the European Commission's response, the submission of applications will begin.
However, the success of the Rent Versus Instalment scheme depends on the legal framework for foreclosures. The Ministry of Finance and parties are betting heavily on this plan, in the hope that it will provide a solution to the problem of foreclosures and protect borrowers who are really unable to pay their instalments.
The beneficiaries
Beneficiaries of the Rent Against Instalment scheme are the non-viable borrowers of the Estia scheme, i.e. those applicants who have received a response to the application in the Estia scheme that their application remains under review. At the same time, beneficiaries are recipients of benefits, recipients of the UGS, single parents, low-income pensioners and people with disabilities. The other criteria that beneficiaries must meet in order to be included in the rent versus instalment property that is collateral in the loan received and does not serve it is of market value up to €250,000. As the ministry argues, the aim of the plan is to protect vulnerable groups of citizens who do not have the possibility of a sustainable restructuring of their loan secured by their main residence, and who face the possibility of selling off their main residence.
The state offers an alternative, definitive solution in which citizens will transfer the ownership of their main residence to KEDIPES, maintaining their residence in the main residence without any other financial burden, with the rent being paid in full by the state in the long term.
Specifically, the implementing body of the project will be KEDIPES, to which the properties whose owners will participate in the project will be transferred. That is, it will pay to banks and credit acquiring companies 60% of the market value of the property that is collateral in the non-serviced loan. It is worth noting that before the transfer by the borrowers of their main residence to KEDIPES, banks and credit acquiring companies should irrevocably and completely write off the loan secured by the main residence and remove the mortgage on the residence. KEDIPES will then rent the property to its owner, who was the former borrower, for a period of 10 to 15 years. The state will pay in full the rent for the property, in which the beneficiary will continue to reside in KEDIPES. After five years, borrowers and first-degree relatives will have the right to repurchase the home at a very favorable price.
The scrutiny of applications
"F" presents the steps that will be followed to join the plan.
Initially, the borrower will submit an application, which will be checked by banks and credit acquiring companies. Applicants must also provide a limited number of documents, such as id card number, social security number and address. At the same time, they will have to present recent utility bills and the title deed of the property. In addition, there should be the consent of the borrower and the owner. Creditors will examine both the application and the relevant documents.
The borrower's eligibility check will be done by KEDIPES, while previously banks and credit acquiring companies will certify that the loan is non-performing. After the checks are completed, the creditors will write off the debt, KEDIPES will buy the main residence and the lease document is signed between the parties. It is noted that, in case of objections, these will be examined by KEDIPES, while participation in the scheme will entail acceptance of the terms, without the possibility of refusal to potentially eligible borrowers. The participation of banks and credit-acquiring companies will be voluntary.
Other settings
According to a note from the Ministry of Finance, there should also be a number of arrangements for the implementation of the Rent Against Instalment scheme. Among other things, banks and companies should lift the second or subsequent mortgage on the dwelling. The cost of settling the MEMO by individuals will be borne by the borrowers and alternatively by the creditors.
The Ministry of Finance will also examine how the MEMO is managed by the Tax Department and the District Administrations. Seven laws will be amended so that transactions in the plan are not subject to transfer fees. Last November, the relevant ministry launched a public consultation on the package of bills that will make it possible to exempt from the obligation to pay tax on the transfer of immovable property, with the ultimate aim of making the project more attractive.
In addition, it will be possible to exempt KEDIPES from the obligation to pay an extraordinary contribution for rents paid to it in the context of the implementation of the plan. One of the bills will include persons to whom no rent allowance is paid, in accordance with the provisions of the basic law, persons whose participation in the project is approved, provided that the entire rent will be paid on their behalf by the state to KEDIPES. It is estimated that, immediately after the opening of the Parliament after the presidential elections, the relevant bills will be submitted.
The pros and cons of the plan
With the implementation of the plan, there will be a sharing of the burden between those involved. Specifically, the borrowers who will join the scheme will proceed to a final settlement of the loan and at the same time will continue to live in their home as tenants, but the negative side is the loss of their property.
On the positive side for banks and credit-acquiring companies will be the final settlement of the loans of vulnerable borrowers and on the negative side the write-off of loans.
For the state, the positives of the plan will be the protection of vulnerable groups of the population from the sale of the main residence, and on the negative will be the budgetary costs that will arise for the implementation of the plan. In previous estimates, the cost of the project had been estimated at around €400 million. Although the Ministry of Finance estimates that around 3 thousand people will be included in the plan. with 4 mm households, however, cannot estimate with certainty the exact number of beneficiaries, as many borrowers do not disclose their income and do not cooperate with banks or acquiring companies. It is estimated that the project will cover a portfolio of €3 billion, of which approximately €1.5 billion. is part of KEDIPES.
