Individuals unable to obtain a bank loan to buy a house as a result of a medical condition they have been diagnosed with will from today be able to apply with the government for it to step in and guarantee their loan.
The new policy, piloted by the Social Accommodation Minister Roderick Galdes, will seek to step in and correct a “gap in the market”, which sees some 40-50 people refused a home loan because of a medical condition every year.
This includes people diagnosed with conditions ranging from Type 1 Diabetes to dwarfism or even blindness.
The new policy was announced this morning during a press conference addressed by Galdes and Prime Minister Robert Abela.
Back in June, Lovin Malta had carried the story of Mark Anthony Cremona, a 26-year-old man who was struggling to get a bank loan to buy a house together with his partner because of a congenital heart condition.
The condition was addressed right after he was born and Cremona has since led a normal life. He was refused a home loan by various providers, leaving him unable to take out a loan, despite being in a position to pay the loan’s monthly repayments.
The story prompted the Social Accomodation Ministry to get in touch with Cremona, and served as a catalyst for talks that were already underway to be finalised.
As things stand, anyone looking to get a bank loan in Malta is required to take out life insurance before this can be approved.
While the process can be relatively straightforward for most people, those diagnosed with certain conditions are normally refused life insurance, or are forced to pay an exorbitantly high premium.
How will the new initiative work?
Through a fund administered by the Housing Authority, the government will be stepping in to guarantee bank loans taken those with certain conditions. The fund will initially be in a position to cover loans of up to combined worth of €30 million, with a bank willing to issue loans already laocked down.
“Initially the funds will come directly from the government, but the idea is for the fund to grow with time so that more conditions can be added with time in order to cover more people,” a ministry spokesperson told Lovin Malta.
For one to be eligible, they will need to be bankable – meaning they are in a position to meet the repayments for a loan – but unable to get life insurance. Applicants will need to prove that they have been denied life insurance by at least two providers. “We want to make sure that those applying have first tried their luck in the market.”
They stressed that the government “absolutely didn’t want to be in a position where [it was] entering and competing in the market”.
Once approved, applicants will have a home loan of up to a maximum of €250,000 guaranteed by the government.
“We feel this is a fair amount that should make it possible for one to purchase a property in today’s market,” the spokesperson said, adding that the guarantee would come against payment of a monthly premium that was slightly higher than market prices.
The premium will be paid into the fund, which will act as an additional revenue stream to its investment portfolio.
“It won’t be anywhere close to the 300% insurance companies but there will be a premium because while we want to address this gap in the market, we can’t create an imbalance either.”
What conditions will be covered?
The scheme will cover individuals diagnosed with dwarfism, deaf-mutism, cancers following a five-year remission period, Spina Bifida, Haemophilia, Epilepsy, Marfan Syndrome, Type 1 Diabetes and congenital heart defects that have been declared non-life-threatening by a cardiologist.
“We currently have a situation where we have people being refused loans for conditions which aren’t life-threatening,” the spokesperson said. “We then also have people who have survived some illness and after doing so, can’t rebuild their life because of this stigma. It’s hardly fair.”
This includes people from all walks of life, including professionals and business owners, who despite earning more than enough money to afford repayments, were unable to purchase property because they could not obtain life insurance.
In the six months since work on the initiative started, the ministry has held talks with a broad range of stakeholders from both the medical and finance sectors.
“We formed a working group which included representatives from the country’s banks, insurance providers, the MFSA, and other players in the market.”
Discussions were also held with several medical professionals and organisations representing people with certain conditions, such as the Beating Hearts Foundation.
“What we found was that the decision on who to grant life insurance to was being taken on the basis of outdated information in some cases. We had people with dwarfism, or people who couldn’t get life insurance despite not suffering from a life-threatening condition.
“Their chance of death is in many cases the same as it is for the general population, probably lower if you factor in the fact that some people smoke, for example.”
What happens in case of a default?
Should the person who obtained the loan pass away, the government will step in and continue to pay the loan for a period of up to 12 months. “We estimate that this should give enough time for matters of inheritance to be settled.”
Once this period has passed, a decision will have to be taken on what will happen to the property.
One option is for the property to be sold after the person passes away. “The property is sold, the bank gets its share back and that’s that.”
Alternatively, the person who inherits the property can also decide to keep it and have the loan transferred to them. They’ll need to sort things out with the bank but essentially they’ll continue from wherever the person who originally got the loan left off.”
Alternatively, should the person inheriting the property not be in a position to afford taking on the whole property, they can enter into an equity sharing agreement with the government.
This essentially means that the government will fork out the money for half the value of the property with the person inheriting it paying the other half. They will then repay the government over a 20-year period. If unable to do so, they can also opt to sell the other half to the government and rent the property back.
How many people will be impacted?
As things stand between 40 and 50 people are refused a home loan every year, but this is likely only a fraction of the people who find themselves in this position.
“You’ll have quite a few people who don’t even try because they wouldn’t want to put themselves through the hassle when they know they’ll be refused,” they said.
“You also have people who will have had their parents step in and guarantee their loan, even though this isn’t a viable solution because it just shifts the problem elsewhere.”
There were also those who might have accepted life insurance at a very high premium, making it difficult to estimate just how many would be impacted.
The ministry is hoping that through the new policy, in addition to the fund growing in order to include more conditions, there will also be a shift in the market that might eventually see insurance companies coming up with their own initiatives.
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