Ruling Disy MP Averof Neophytou on Monday withdrew bills intended to provide tax relief to borrowers with non-performing loans, after it emerged that the proposals would achieve the opposite of the stated objective.
Neophytou as well as MPs from the Solidarity and the Citizens Alliance parties had co-sponsored five bills aiming to relieve borrowers with delinquent loans, tied up with a mortgage, of the requirement to pay capital gains tax (CGT) and transfer fees upon completion of a foreclosure procedure.
The obligation to pay CGT falls on the owner of the property.
But under the legislative proposals, payment of these taxes by the property owner – the borrower with non-performing loans – would be deferred to the end of 2021.
This, Neophytou argued, would act as an incentive, encouraging borrowers to keep engaging with banks in restructuring their loans rather than lose their home.
However, a finance ministry told lawmakers that in practice the inverse would occur.
The official pointed out that a property cannot be definitively transferred to the new owner – be it a bank or an individual through an auction – until and unless CGT is paid to the government.
Precisely because of this obligation, in a roundabout way borrowers with a mortgaged property are afforded an extra safeguard against losing their home – as long as CGT remains unpaid the property stays in the owner’s name.
In effect, said the finance ministry official, scrapping the need to pay CGT would speed up foreclosures, to the detriment of the very same borrowers whom Neophytou’s bills purported to help.
On hearing this, Neophytou said he was withdrawing the bills, leaving it to the two MPs of Solidarity and the Citizens Alliance to decide whether to continue sponsoring them.
Edek MP Costis Efstathiou said of Neophytou’s proposals that they amounted to indirect assistance to the banks.
Speaking to the Cyprus Mail later, independent MP Anna Theologou – who sits on the House finance committee – said that several properties put up for foreclosure are currently in limbo status – whereas on the books of the land registry, they cannot be transferred until all taxes are paid.
Since 2015 delinquent borrowers with mortgages may also engage in debt-to-assets swaps with their bank.