A scheme that gives a new hope to the marginalised

It’s absolutely no news that we tend to take a lot of things for granted. For instance, one would be forgiven in thinking that anyone who is in stable employment and has a healthy income should be in a prime position to buy his or her own house. With the help of retail banks and various intermediaries, many Maltese in fact do become homeowners and statistics confirm that Malta has one of the highest rates of homeownership in Europe. However, there exists a silent minority of persons, pushed to the margins of the property market who still can’t purchase a house through the ordinary lending route, despite affording to do so. What is this invisible barrier we’ve taken for granted for many years?

Ironically, it’s usually the procurement of a life insurance policy which stands in the way of these people fulfilling their life-long dream of owning their own residence. The reasons why insurance companies reject life insurance cover varies considerably, but in essence it all boils down to the applicant’s medical history. The lack of real-time statistics surrounding morbidity in the Maltese population is often the reason why insurers cannot offer quotations to individuals falling outside the normal parameters of their underwriting processes. Insurers are private industry players who are free to set their own onboarding criteria, and this would be no problem at all except for the fact that banks in Malta require every home loan customer to have a valid life insurance policy. For most of us it’s just one of the many formalities in the journey towards housing independence, but for others it’s a mountain they simply can’t get over.

What can be done for persons who are rejected life insurance cover? So far, the only options were to give up and turn towards renting a house, or alternatively one could seek wealthy relatives who can tie up huge sums of money to guarantee your loan with the banks. It’s no surprise that the latter option can never be a viable choice for the vast majority of persons who find themselves in this quagmire. The State could no longer turn a blind eye towards these frustrating stories of taxpaying citizens being denied access to the property market for reasons beyond their control.

The solution sought by the Ministry for Social Accommodation was one which offered a suitable alternative to life insurance policies which would simultaneously protect the interests of the next of kin of the prospective borrower as well as the financial stability of third parties involved in the home financing process.

PM Robert Abela & Minister for Social Accomodation Roderick Galdes launching the scheme today

How will the scheme work?

The State shall offer a maximum guarantee of €250,000 to cover the mortality risk instead of the ordinary life insurance protection and in return shall receive an annual participation fee that shall be levied similarly to premia charged in the private market.

The State shall offer a maximum guarantee of €250,000 to cover the mortality risk.

If the applicant dies before the loan is settled, the scheme shall work sequentially in two ways, with the first phase wherein the scheme shall act as an income replacement mechanism for a maximum of 12 months after the death of the beneficiary. This is intended to allow enough time for the next of kin to settle all pending inheritance issues and grieve. Once the successors have dealt with these matters, a decision is taken by the successors of the deceased on what shall happen next and the options available to them shall be 3:

(a) sell the property and settle the outstanding debt from the proceeds of the sale;

(b) negotiate a re-mortgaging agreement with the Bank with the Housing Authority acting as an intermediary to facilitate the onboarding process; or

(c) enter into an equity-sharing agreement with the Housing Authority, which shall pay the outstanding loan itself and become a part-owner of the property in terms of the proportion it has paid to the participating bank.

If the successors opt for option (c) then the guarantee shall be acting as an equity guarantee, with the Government becoming a co-owner with the successors, but in all cases these heirs shall always enjoy the full and exclusive right of habitation. The Government shall incentivise the heirs to buy out the Government’s portion of the property through advantageous rates and instalments. If the heirs are not in a position to purchase the Government’s share within twenty years from the date of commencement of the equity sharing arrangement, the Government may exercise its right to purchase the successors’ share of the property and become the sole owner of the property, providing the heirs not only with an injection of liquidity but also guaranteeing an affordable rent to these persons for the rest of their lives.

This way we are ensuring that the scheme remains sustainable, as the Authority shall register no losses over the long-term and at the same time the beneficiaries themselves and the generation they leave behind are always assured of adequate accommodation no matter what happens. The guarantee provided to banks shall be made possible by a back-to-back guarantee with the National Development and Social Fund (NDSF), which shall be ring-fencing €3,000,000 to cover €30,000,000 worth of loans in the first cycle of the scheme. Assuming a maximum protection of €250,000 is sought by each applicant, the first cycle shall be able to service around 120 beneficiaries.

This scheme however is only the beginning of a wider discussion on the quality of life of current and former patients, persons with disabilities and other outliers who feel marginalised by current property market practices and the wider real estate sector. We need to understand why people are left out, and what we can do to make them feel like full members of society.

The Government is acting as a pioneer in this field, but it will also take a lot of effort and empathy from private actors for these barriers to be permanently removed.

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