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Homeowners Taking On Loans Five Times Their Income, Warns Malta’s Central Bank

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In the face of the ever-growing construction industry, Malta’s Central Bank has warned that borrowers are increasingly taking on larger loans compared to their income.

At present, nearly half of the loans from domestic banks are three to five times the total gross income. There are even a number of cases where it is six times as much.

This, the Central Bank argues, indicates a growing vulnerability should an economic downturn ever take place.

“Left unchecked, this process can spiral off, similar to the events that unfolded across several advanced economies in 2007/2008,” the Central Bank said.

Recently, the Central Bank moved to establish “minimum standards and create a level playing field” by imposing stronger measures on first-time-buyers and homeowners looking to purchase a new piece of residential real estate.

It said that studies showed that the directive would impact 2.7 per cent of those buying their primary residence and 13.2 per cent of all buyers of residential property.

In the report, the Central Bank explained that this was done in order to prevent any sort of serious fluctuations in the market.

One case on its own does not pose a risk to the entire market. However, unpayable home loans spread across an entire section of the economy could have devastating effects.

Stress tests conducted by the Central Bank found that the debt burden was estimated to remain sustainable.

In a wider picture of the industry, loans in the construction and real estate industry and grow by 8% in 2018, indicating a still-growing market.

Despite this increase, growth was still significantly lower than the double-digit growth rates recorded in the pre-2008 boom period.

READ NEXT: EXPLAINER: How Malta’s Homeowners Will Be Affected By The Central Bank’s Loan Changes

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