The Cyprus Ministry of Finance calculated the number of borrowers who fall under the criteria of the state Estia program, but cannot contribute even a small amount, since they are in a deplorable financial situation.
By the way, the total number of such borrowers has reached 700 people.
According to the Ministry, the average monthly income of unsustainable borrowers is less than €1,000 - from €650 to €750. About 50% of borrowers (350 people) cannot service their loans at all. At the same time, the average cost of mortgaged real estate is about €200 thousand. About a third of borrowers are married and have dependents, another third are single parents who also have at least one dependent, the rest are borrowers who are married but have no dependents.
The Ministry of Finance is currently investigating the cases of problem borrowers to find a way out of this situation.
It should be noted that the Cypriot government announced earlier their intention to launch a new program of government support for vulnerable households with red loans.
According to the idea, the property of borrowers with a discount of 50% to 60% will be bought by the Bad Bank, which is under the leadership of the Cyprus Asset Management Company (KEDIPES).
The beneficiaries of the plan will be individuals with overdue loans to secure the first residential or commercial property, the market value of which does not exceed €350 thousand. At the same time, borrowers will be able to take advantage of the new scheme, regardless of whether they previously participated in other government support schemes or not.
In parallel with the acquisition of the property, KEDIPES will sign a lease agreement with problem borrowers. The annual rent is expected to be between 2% and 3% of the market value of the property. The rent will be regularly adjusted according to certain conditions. At the same time, for borrowers who belong to vulnerable groups, the annual rent, including any increases, will be paid by the government.
If the age of the property owners as of December 31, 2021 is over 65 years old, they will be able to permanently reside in their house for the rest of their lives, subject to the payment of the appropriate rent. The project participants will have the opportunity to buy the property within five years at the cost of its acquisition by KEDIPES minus the rent paid.
First-degree relatives (children, father and mother) of the homeowners will have the right to redemption on the same terms as the owner.
After the five-year period, KEDIPES will be able to sell the property, and the owner will receive the first right to purchase the property at the price that KEDIPES will charge. Thus, troubled borrowers will have the opportunity to rent their former property with the option of further purchase.
According to preliminary data, the project will cover red loans worth between €2.5 and €3 billion euros, of which approximately €1.5 billion euros will fall on KEDIPES clients.
As you may know, thanks to the transformation of KEDIPES into a Bad Bank, the Ministry of Finance is promoting a new plan for vulnerable families, the plan has nothing to do with Estia-2. In fact, it will be a kind of leasing, in which borrowers will be able to buy out their property within 5 years. As KEDIPES develops, the new company will buy loans for basic residential and commercial housing.
The European Central Bank stressed the need to reduce non-performing loans, the number of which is still very high in Cyprus. In addition, there is a risk of new problem loans caused by the coronavirus pandemic.