Enigma of property loans for first time buyers

Last Updated on Thursday, 6 June, 2024 at 9:32 am by Andre Camilleri

The issue of housing affordability and the rise in the cost of living are arguably the biggest two concerns at national level. Quick on this social problem is a reply by Minister for Social and Affordable Accommodation Roderick Galdes.

He asserts that the state invested €60m over the past decade to help 8,000 people gain access to ownership of their own homes. This is good news but it pales into insignificance with the millions squandered on the sale of public land to property barons at preferential rates and the €400m lost on the privatisation of three hospitals.

Later on, in this article, one reads about a portfolio of schemes administered by the Housing Authority intended to help solve the affordability problem.

The problem of social housing is not unique to Malta. Many European countries suffer from this phenomenon. When considering the annual deficits registered since the start of the pandemic in 2020, one asks, can the state allocate more millions to seriously solve this chronic social malaise. The myth that enough is being allocated by Castille sounds palatable for the party faithful yet noting the plague of core inflation and higher cost of living, all these factors pose social challenges.

To what degree is this impacting lifetime decisions of young couples? Considering that Malta registers the lowest fertility rate in Europe of 1.1 and has an aging work force, one must try to solve the dilemma of couples who postpone marriage and childbirth in an effort to save for the property loan deposit. Many delay to enter a relationship in order to increase one’s prospects of qualifying for a loan.

This conundrum poses a number of social questions such as the risk of young couples moving into employment rather than furthering their studies to start moving up the property ladder at an earlier stage before they are priced out? Sad statistics show that 17% of students are early school-leavers while 40% of those sitting for “O” levels fail. Are ageing parents being pressured to remain in employment beyond retirement to give financial support to their children who would otherwise fail to enter the property market? What is the risk of homelessness for borrowers who have no additional streams of revenue to tap?

Another reality is that the working poor may have enough money to put food on the table but cannot afford the monthly loan payments. Social and economic risks are growing with every day that passes. With around 80,000 persons with low income close to the poverty line, can the state be less profligate with the chest sustained by our taxes.

This also points to the affordability problem of families wishing to own larger premises. The Housing Authority comes to the rescue and has issued a number of schemes to help mitigate the affordability problem. One such scheme talks about offering help to individuals aged 40 or less who cannot afford the 10% initial bank deposit. It acts as a guarantor in a personal loan for this amount, thereby enabling beneficiaries to purchase properties worth up to €225,000.

Interest on this personal loan is paid by the Housing Authority. Then there is the Private Rent Housing Benefit scheme. This provides financial assistance for rent payments. It ensures that nobody would have to pay more than 25% of their income in rent; provided that rent paid does not exceed €400/month for singles and couples without children; €500/month for families with one child and €600/month for families with two or more children.

A grant of up to €167/month is given to finance part of the repayment of a loan for the purchase of a property worth up to €140,000. The annual income minimum threshold is €18,536.64 for single persons, €19,536.64 for single parents and €20,536.64 for couples. Additionally, one meets with the “New Hope” scheme, aimed at individuals who cannot take a life insurance due to a medical condition to purchase their residence. In this case, the Housing Authority acts as a guarantor in lieu of the life insurance policy to enable the purchase of properties worth up to €250,000.

At this stage, one asks what is the typical parameters for a house loan. Let us view some statistics, published by Bank of Valletta, which recently reported bumper profits for mid-term. BOV (a government majority bank) can approve a loan of €250,000, at a preferential low fixed interest rate of 0.25% p.a. for the first 18 months and a variable interest rate of 2.80% p.a. for the remaining 282 months. The APRC will be 2.53% p.a. The loan will be repayable in 18 equal monthly instalments of €860.10 and 282 equal monthly instalments of €1,145.09 over a term of 25 years.

Such repayments are a heavy burden for some families. Reality tells us that housing prices are neither affordable nor sustainable for low-income earners and this is so not because of some excessive demand which has created a shortage, but because of property speculation.

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