Finance Minister calls on banks to contain lending rates for first-time homebuyers

Finance Minister Makis Keravnos has sent letters to the Association of Cyprus Banks and Credit Acquiring Companies / Credit Servicers Association asking for measures that will help contain rising interest rates for performing loans; particularly mortgages of up to €350,000 taken out by first-time homebuyers.

In a letter to the Director General of the Association of Cyprus Banks dated 11 April, Keravnos said that the Finance Ministry fully acknowledges the important role of the banks for the economy and society at large and as such, it is in favour of maintaining and safeguarding the soundness of Cyprus' bank sector.

However, he added, Cyprus – as is the case with its European partners – is facing serious issues brought on by inflation and constantly rising interest rates, which in turn has created serious financial problems particularly for the middle class and especially for those who borrow to build or buy their first home; who by vast majority are young couples.

And so, Keravnos said, the Ministry believes that at this critical economic juncture, the banks could to some extent absorb part of the increase in interest rates with barely any impact on them.

The Minister explained that this should only concern performing mortgages that were taken out by first-time homebuyers, of up to €350,000 in current market prices and for which a floating rate applies.

If the banks respond positively, he said, it will offer relief to a number of households and maintain the quality of the banks' portfolio to a significant level.

In his letter to the Director General of the Credit Acquiring Companies / Credit Servicers Association, dated 13 April, the Finance Minister said that the continuously rising basic interest rates have led to a significant increase in most floating lending rates. This raises concerns over the economic resilience and reliability of the borrowers, and could lead to a deterioration of the households’ finances.

"I consider that you should examine the introduction of schemes with the aim of maintaining interest rates where they are now or returning interest for performing loans using the primary home as a collateral worth up to €350,000," he added.

Keravnos noted that these schemes would not entail any real spending by the Credit Acquiring Companies, just a temporary reduction of income and profits, with the upside being that borrowers will continue to pay their loans without any issues.

(Source: CNA)