The mortgage market in Malta: free passport when buying a house

Kop-Munt,  Friday, 22 September 2017

Family with blueprints at construction site 

Anyone who buys a house in Malta worth at least € 350,000 will receive a passport as a gift. The Maltese Government wants to attract wealthy foreigners and therefore offers citizenship when purchasing a luxury property. At the end of last year, more than 800 people had benefited from the scheme.

The supply of the passport is one of the reasons why, according to the Maltese statistical office, house prices in Malta have risen by more than 5% per year in recent years. The purchase of a house is only a small part of the requirements imposed on foreign super-rich people who want to buy a Maltese passport: they have to pay at least € 650,000 to the Maltese State Development Fund and buy € 150,000 in government bonds.

Blooming housing market

This does not stop the super-rich - mainly from Asia and the Middle East - and the Maltese real estate market is, therefore, functioning well. Project developers are happy to benefit from this, and many new projects have been started. Last year, the Maltese Government granted no less than 7,508 permits for new construction projects, compared with 3,947 in 2015 and 2,937 in 2014.

In addition to wealthy foreigners, there is also another reason for the upturn in the market: the economy is running well, and the Maltese people have been spending more in recent years. Also, there is a subsidy for starters on the housing market, who do not have to pay purchase tax. The Maltese mortgage market is, of course, benefiting from the upturn in the housing market. Mortgages outstanding amounted to EUR 4.2 billion in 2016, an increase of 7.7 percent compared to the previous year.

There are only two mortgage lenders in Malta that matter: Bank of Valletta and HSBC Malta. Together, they hold more than eighty percent of the market. The market for (independent) mortgage advisers is therefore small: most Maltese people go to the bank themselves.

Monthly charges rise along with income

Anyone who buys a property must bring at least a quarter of its value in equity: the maximum Loan-to-value is 75 percent. House buyers (81 percent of the Maltese population) can opt for a term of 40 years, but Maltese banks want a mortgage to be repaid when they reach retirement age. Last year, the interest rate on an average Maltese mortgage was 2.8%. In Malta, it is quite common practice to only pay mortgage interest in the first few years and to start repaying the mortgage only after some years. The idea is that the monthly costs will then increase with income increase.

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