Bridging the gap

“We aimed to intervene, making it feasible for a group that was marginally being priced out of the market to afford their own homes.”

The LoanUp scheme, initiated by the Foundation for Affordable Housing, represents a significant effort towards making home ownership more attainable for hundreds of families, thanks to reduced interest rates on property loans.

This financial instrument is planned to expand loan accessibility for families with low to middle incomes, thereby increasing their potential to borrow. Households with a middle income will be able to access loans 15% larger than typically possible. Eligibility is limited to applicants younger than 30 years old.

The Journal spoke to Jake Azzopardi, the Foundation’s CEO.

“In today’s reality, most people looking to buy their own home do so through bank loans. Our analysis, published in a detailed report last November, highlighted the existing market spaces and the rising minimum income required to access the property market year over year. Recognising the gap, we aimed to intervene, making it feasible for a group that was marginally being priced out of the market to afford their own homes.”

Jake Azzopardi

The November report

The report referred to by Azzopardi clearly shows the persistent rise in property prices, which is increasingly elevating the income level required for prospective homeowners to qualify for a mortgage.

Consequently, by the start of 2023, individuals or groups aged 20-25, earning less than €25,000 annually, found themselves disqualified from securing a mortgage for an average-priced home (approximately €225,000). Furthermore, should home loan interest rates rise in response to global financial market trends, the necessary annual income to qualify for a loan would climb to more than €30,000.

A deeper analysis of the factors influencing Malta’s socioeconomic environment reveals that the challenge of affordability extends beyond the archetype of young, first-time buyers. Other demographics, including renters and individuals who are separated or divorced, might need a considerably higher income to qualify for a mortgage.

For instance, a 40-year-old looking to secure a mortgage for an average-priced property, with a maximum loan term of 25 years, would need to earn more than €35,000 annually. With three-quarters of people aged 35 to 45 earning below this mark, a substantial segment of 40-year-olds could find themselves unable to buy a home should the need arise.

Why can’t the government just put a lid on property prices?

For many reasons. Malta operates within a market economy where prices, including those of property, are generally determined by supply and demand dynamics. Direct intervention in setting prices would disrupt the market, leading to unintended consequences such as a decrease in property development, which could worsen housing shortages.

Additionally, property owners have rights, which include setting prices for the sale or rental of their properties. Government regulations imposing price controls would infringe on these rights.

The real estate sector is a significant part of Malta’s economy, attracting both local and foreign investment. Strict regulation of property prices might deter investment, affecting not only the construction industry but also related sectors such as legal services, finance, and tourism.

It’s also a matter of quality. While regulating prices might initially make housing more affordable, it could also lead to a decline in the quality of housing if developers cut corners to maintain profitability under price constraints.

What the Government can do and is, in fact doing, is take indirect measures to influence property affordability. Malta’s first time buyer scheme is one such example, whereby a grant of €10,000 spread over a period of ten years is distributed in instalments of €1,000 per annum.

Adjustments that make a difference

CEO Jake Azzopardi gave The Journal a practical example of how LoanUp will help.

“Without this product, an individual might go to the bank to borrow €150,000. With our assistance, they could potentially secure a loan amounting to €172,500. This adjustment can make a significant difference for certain income categories, bridging the gap between purchasing a home or not.”

Among the categories that will be helped are parents who are raising their children single-handedly.

“We are particularly focused on offering support to single parents who, without our product, might only afford a very small space, such as a one-bedroom apartment. However, with our loan product, they and their children can live a life they deserve, establishing a more stable future.”

What’s next?

The Foundation for Affordable Housing is exploring additional products to address various market needs, aiming to identify gaps and enhance collaboration to strengthen both financing and supply sides of the property market.

“Our goal is to move towards a more socially inclusive market with more affordable housing solutions. By intervening in both the financial and property markets, we plan to engage with the public again soon, introducing new arrangements that the current market fails to offer. Our efforts are crucial, as they align with the Maltese pride in homeownership,” said Jake Azzopardi. In fact, the strong 82% homeownership rate in Malta forms a significant part of the socio-economic pillar of our country.

With people finding the property market unreachable, the need for affordable options is rampant.

“Solutions do exist,” says Jake Azzopardi, “and through thoughtful collaboration, more can be found. The first solution has already been introduced, and we will be back with more on the horizon.”

Main photo: Antonio Stasi

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