Lowest mortgage interest rates in the euro area

In a matter of about a year and a half, the interest burden in the euro area almost quadrupled, while in Malta it remained stable.

A report written by a senior economist at the Central Bank of Malta, Nathaniel Debono, confirms that the mortgage interest rate in Malta is the lowest in the euro area. In fact, the rate in Malta is around 2.6%, while in the euro area it has exceeded 4%.

Looking at the impact of this difference on loans of around €250,000, the euro area interest rate means that a borrower must pay €3,500 more per annum, or almost €300 per month. Debono’s study indicates that, in a matter of about a year and a half, the interest burden in the euro area almost quadrupled, while in Malta it remained stable. It is also worth noting that, during the same period, here in Malta the Government introduced a grant of €1,000 for first time buyers who take out bank loans.

Thus, compared to the European average, a first-time buyer in Malta is paying €3,500 less in interest and receiving a grant of €1,000. This means a difference of €375 per month which remains in the pockets of Maltese first time buyers compared to a first-time buyer in the euro area.

The most adversely affected by the rise in the interest rate in recent months turn out to be borrowers in Portugal. There, the interest rate on mortgages reached 6%, or almost two and a half times the rate in Malta. A first-time buyer in Portugal who borrows €250,000 pays €8,500 more in interest, or more than €700 a month more, than a Maltese first-time buyer. This calculation does not take into account the grant given by the Maltese government to first-time buyers who are borrowing to buy a house.

The Central Bank of Malta’s study explains that one of the main reasons why interest rates did not rise in Malta was the high level of liquidity of local banks. This was undoubtedly due to the realatively better financial situation of families, such that they continued to increase their deposits in recent years. In fact, since the pandemic, household deposits have increased by almost €4 billion and today are double what they were in 2013. This reflects the Government’s generous financial assistance during the pandemic, as well as the policy of stable energy prices and sharp increases in social benefits.

The strong economic growth rate also helped local banks to further increase their profitability, while the proportion of non-performing loans fall dramatically. In fact, Debono’s report indicates that only 2% of debts are now creating repayment problems for banks when, until a few years ago, this proportion was almost four times higher.

The Central Bank of Malta’s study confirms previous studies carried out by the IMF which have also shown how stable the situation in Malta is with regard to interest rates on loans, while in the rest of Europe there have been very large increases which have had a severe negative impact on households. 

Photo: Alena Darmel

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