EXPLAINER: How Malta’s Homeowners Will Be Affected By The Central Bank’s Loan Changes
Malta’s property sector has been a fundamental component of the country’s economic boom, with the construction sector churning out development after development. The rapid growth has brought its challenges, with volatile market prices fluctuating from record increases to record decreases.
The government has reacted within the rental sector. However, it’s the Central Bank’s moves to establish “minimum standards and create a level playing field” which could have a significant effect in Malta’s real estate sector.
Here’s everything you need to know.
1. Why did they do it?
Coming into force on 1 July 2019, the Central Bank’s directive looks to safeguard the stability of the financial systems a whole by addressing risks in the sector.
It aims to protect both lenders and borrowers from potential financial losses from a possible economic downturn.
2. How will it affect first-time buyers?
In short, very little.
First-time buyers now need to have at least 10% of the loan sum to be eligible, while the monthly instalments cannot be more than 40% of the person’s income. Loans must be paid within 40 years.
People buying a property that is less than €175,000 are exempt from the regulations, giving buyers some breathing room in terms of deposits.
If a person has already owned a residence that has been sold or has signed a promise-of-sale agreement on the property, they will qualify as a first-time buyer under the scheme.
3. And what if you’re buying another property?
The stricter measures really come into play if you’re not a first-time buyer purchasing a new piece of residential real estate.
A 15% initial loan sum will be introduced, with buyers now required to pay 25% of the total by the second year.
There are concerns as to how this measure will affect families looking to grow their home. To put things into perspective, if you were to take a €300,000 loan (which is far from a lot in today’s market), you would have to pay close to €75,000 within two years.
Monthly loan repayments cannot be more than 40% of the loanee’s income, while the total sum must be repaid within 25 years to at retirement (whichever comes first).
There is some leeway, with banks able to request a deposit that is less than 15% in 20% of all loans issued.
4. What will happen if a lender doesn’t follow the rules?
If any lender (who must be licensed by the MFSA to be a residential real estate lender) fails to follow the directive, the Central Bank has the right to impose sanctions, as according to regulation.
This means the offender could be subject to a fine ranging from €1,000 up to a maximum of €50,000.
What do you make of these changes?
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