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    CBM Amends Directive on Borrower-Based Measures to Ease COVID Impact

    June 01, 2020

    In the context of the ongoing COVID-19 pandemic, CBM issued a notice to amend Directive 16 on borrower-based measures. Directive 16 sets limits on the Loan-to-Value at origination, Debt-Service-to-Income at origination, and term to maturity for Residential Real Estate loans. CBM also announced that it is implementing the ECB guideline (ECB/2020/29) on additional temporary measures for Eurosystem refinancing operations and eligibility of collateral in full via amendments to the MNB Directive 8 on monetary policy instruments and procedures. Directive 8 is being amended in relation to the admission of certain marketable assets and issuers eligible on April 07, 2020, the new valuation haircut levels applied to asset-backed securities, and the new valuation haircut levels applied to marketable assets, other than asset-backed securities. The amendments to Directive 8 became applicable from May 18, 2020.

    CBM recognizes that the outbreak of COVID-19 has caused serious disruptions in economic activity, including in the real estate market. CBM also acknowledges the temporary distortions in the borrower’s ability to adhere to the limits sets in Directive 16, especially in cases where it could be established that the loss of income is temporary. Against this background, CBM is announcing the following measures:

    • Directive 16 specifies that those who wanted to buy a second property (Category II buyers) with financing from credit institutions would have to make a at least 15% down payment until June 30, 2020. The down payment requirement was due to increase to 25% from July 01, 2020 but this increase is now being postponed by a year, to July 01, 2021. The one-year extension is being implemented to provide the necessary relief to prospective borrowers that are granted a residential real estate loan.
    • CBM also temporarily eased restrictions on the maximum extent of the permitted repayment burden by borrowers, set at 40% in the Directive. The limit is being relaxed for a period of six months, provided that the borrower can demonstrate that the exceeding of this limit is temporary.

     The amended measures in Directive 16 are to come into effect from the date of publication of the Notice on these amendments and may be extended if CBM assesses that it is appropriate to do so.

     

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    Keywords: Europe, Malta, Banking, COVID-19, Residential Real Estate, LTV, DSTI, Credit Risk, CBM

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