The renewed discussion on property foreclosures at the House Finance Committee once again produced little new substance, taking place without a clear understanding of exactly which problem policymakers are trying to solve and at what cost to the existing framework for managing non-performing loans (NPLs).
Key institutions including the Central Bank of Cyprus, the Ministry of Finance, the European Commission, the International Monetary Fund and international rating agencies have all called for the current framework to remain unchanged. They argue that the existing system already provides borrowers with tools to manage their debts.
Last Monday’s debate in parliament took place without the presentation of detailed data or concrete figures, even from the Ministry of Finance, which announced that it plans to introduce new legislation aimed at strengthening the powers of the Financial Ombudsman and improving procedures within the Insolvency Service.
At the same time, the possibility of a new suspension of foreclosures is formally on the table. The idea has been publicly proposed by the Democratic Rally (DISY), pending clarity on the legislation the government intends to bring forward and in light of heightened geopolitical tensions.
Calls for updated social support schemes
DISY has also proposed examining an updated social policy framework similar to past programmes such as Estia, Mortgage-to-Rent and Oikia, aimed at supporting genuinely vulnerable borrowers.
AKEL, for its part, argues that the issue has evolved into a major social problem. The party says it has submitted more than 35 legislative proposals and amendments since 2014 aimed at protecting borrowers and guarantors.
Yet this proliferation of legislative proposals – described by some observers as “legislative inflation” – comes at a time when more targeted tools already available to borrowers remain largely unused.
Among these tools are personal repayment plans under the insolvency framework and the possibility of verifying the amount of debt through the Financial Ombudsman. Both mechanisms are in force but have seen limited use by borrowers.
Fragmented debate rather than strategy
The overall picture resembles a fragmented patchwork of regulatory initiatives rather than a coherent strategy.
Institutional stakeholders such as the Central Bank and the Association of Cyprus Banks have warned that weakening the foreclosure framework could have wider consequences, including undermining payment discipline and increasing credit risk in the banking sector.
The Ministry of Finance
Against this backdrop, the Ministry of Finance informed the parliamentary committee that it is preparing legislation to strengthen the role of the Financial Ombudsman and the insolvency framework.
A central element of the proposal would make the ombudsman’s decisions binding in cases that fall within the office’s jurisdiction. The goal is to provide borrowers with faster and more effective protection through administrative dispute resolution while also easing the burden on courts, which currently face significant delays.
The ministry is also proposing to link the ombudsman’s authority to confirm the size of a borrower’s debt with the process of personal repayment plans under the insolvency framework. The intention is to ensure that debt verification becomes part of a broader restructuring solution rather than remaining an isolated step.
However, a representative of the ministry clarified that the draft legislation will not be submitted before the current parliamentary term ends.
Existing tools remain underused
Despite the extensive public debate, key questions remain largely absent from the discussion. These include which specific problems the proposed legislative changes aim to address and which existing mechanisms are already available but underutilised.
One such mechanism is the option for borrowers to request verification of their outstanding debt through the Financial Ombudsman for primary residences valued at up to €350,000. The tool was introduced through amendments adopted in 2023 but, according to both the government and banking institutions, it has not been used to the extent expected.
In practice, despite the intense debate that surrounded the issue in 2022, very few borrowers have applied for debt verification.
A similar pattern is seen in the insolvency framework, particularly regarding personal repayment plans. The Insolvency Service describes these plans as the only institutional tool that addresses foreclosures while maintaining a balance between borrowers, creditors and guarantors.
Personal repayment plans apply to individuals who are insolvent but meet specific criteria allowing them to enter an organised process for restructuring their debts.
An insolvency practitioner examines the debtor’s income and assets and works with the borrower to prepare a restructuring plan, which is then submitted to creditors. Once the court issues a protective certificate, enforcement measures – including foreclosures – are temporarily suspended.
If approved, the plan may include extending the repayment period, reducing monthly instalments, partial write-offs of capital or interest, and special arrangements to allow the borrower to retain their primary residence.
In essence, the mechanism links loan repayment to the real financial capacity of the household without undermining the broader framework for managing non-performing loans. Yet despite its potential, the tool remains largely unused.
Several observers now suggest that the state could revisit the issue through an updated protection scheme aimed at vulnerable borrowers who were unable to benefit from previous programmes.
Such a policy could be combined with strengthening both the Insolvency Service and the Office of the Financial Ombudsman. A targeted package based on reliable data about borrower profiles and the stages of restructuring procedures could offer more effective protection for vulnerable households while preserving the stability of the NPL management framework and avoiding the creation of a two-tier borrower system.