Issue link: https://maltatoday.uberflip.com/i/1494460
8 OPINION 9.3.2023 Are house loans working for the masses? George Mangion George Mangion is a senior partner at PKF, an audit and consultancy firm, and has over 25 years' experience in accounting, taxation, financial and consultancy services. His efforts have made PKF instrumental in establishing many companies in Malta and established PKF as a leading professional financial service provider on the Island T he issue of housing affordabili- ty and the rise in the cost of liv- ing are arguably the biggest two concerns at national level. Quick on this social problem is a reply by the Minister for Social and Affordable Accommoda- tion Roderick Galdes. He insists that the State invested more than €60million over the past decade helping 8,000 people gain access to ownership of their own homes. Later on, in this article we will refer to a portfolio of schemes administered by the Housing Authority to help solve the af- fordability problem. Good news is the for- mation of a recent foundation set between the Church and the State tasked with pro- viding affordable accommodation to low and medium earners. e government will be contributing €300,000 annually to the foundation, and the church has hand- ed over the Saint Joan of Arc convent in Kirkop for the first housing project. e foundation, which is a partnership between the government and church, aims to help people who do not qualify for social housing. Readers must put this data into perspective. e problem of social housing is not unique to Malta. Many European coun- tries suffer from this phenomenon. When considering the annual deficits registered since the start of the pandemic in 2020, one asks can the State allocate more mil- lions to seriously solve this chronic social malaise. e myth that enough is being allocated by Castille sounds palatable for the party faithful yet noting the plague of running inflation on building materials and higher cost of living - all this poses social challenges: to what degree is this impacting on lifetime decisions on young couples? Consider that Malta registers the lowest fertility rate in Europe and has an aging work force, so one must try to solve the dilemma of couples who postpone mar- riage to save for the bank loan deposit. Many delay to enter a relationship in or- der to increase one's prospects of qualify- ing for a loan. is conundrum poses a number of so- cial questions such as - is there a risk of young people moving into employment, rather than furthering their studies, to start moving up the property ladder at an earlier stage before they are priced out? Are ageing parents being pressured to re- main in employment beyond retirement to give financial support to their chil- dren who would otherwise fail to enter the property market? What is the risk of homelessness for borrowers who have no additional streams of revenue to tap? Another reality is that the working poor may have enough money to put food on the table but cannot afford the monthly loan payments. Social and economic risks are growing with every day that passes. With around 80,000 persons with low income close to the poverty line, can the State be more parsimonious with the war chest sustained by our taxes. For example, it squandered more than €10.5 million on building a wind-farm in Montenegro by Enemalta and there is no space to men- tion others. A recent study by Grant ornton/ Dhalia highlighted the case of a two-adult household where the joint net annual sal- ary is €38,155. Two years ago, the average market price for a modest 115 square metre finished apartment was €215,000. Today, after taking borrowing capacity into consideration, assuming the 10% minimum down payment has been saved, a two-adult household would be able to afford a property worth a maximum loan from BOV of €240,000. However, one cannot but refer to ef- forts by the Housing Authority which over the past decade has issued a number of schemes to help mitigate the afforda- bility problem. One such scheme talks about offering help to individuals aged 40 or less who cannot afford the 10% initial bank deposit. It acts as a guarantor in a personal loan for this amount, thereby enabling beneficiaries to purchase prop- erties worth up to €225,000. Interest on this personal loan is paid by the Housing Authority. en there is the Private Rent Housing Benefit Scheme. is provides financial assistance for rent payments. It ensures that nobody would have to pay more than 25% of their income in rent; provided that rent paid does not exceed €400/month for singles and couples without children; €500/month for families with one child and €600/month for families with two or more children. A grant of up to €167/month is given to finance part of the repayment of a loan for the purchase of a property worth up to €140,000. e annual income mini- mum threshold is €18,536.64 for single persons, €19,536.64 for single parents and €20,536.64 for couples. e "New Hope" scheme is aimed at in- dividuals who cannot take a life insurance due to a medical condition to purchase their residence. In this case, the Housing Authority acts as a guarantor in lieu of the life insurance policy to enable the pur- chase of properties worth up to €250,000. At this stage, one asks what is the typ- ical parameters for a house loan? Let us study some statistics published by Bank of Valletta, starting with a loan of €250,000, at a preferential low fixed interest rate of 0.25% p.a. for the first 18 months and a variable interest rate of 2.80% p.a. for the remaining 282 months. e APRC will be 2.53% p.a. e loan will be repayable in 18 equal monthly instalments of €860.10 and 282 equal monthly instalments of €1,145.09 over a term of 25 years. Such repayments are a millstone for families. If a high earning couple earns €45,000 pa, then after taxes, household expenses, food, insurance, holidays and credit card expenses and loan payment, their pay reduces to mere €450 monthly. Not much to save for a rainy day. Reali- ty tells us that housing prices are neither affordable nor sustainable for low-income earners and this is so not because of some excessive demand which has created a shortage, but because of property specu- lation. Consider that last year, property values sold by estate agents exceeded a record €3.3 billion. is is reflected by a report by KPMG which confirmed such phenome- non of unaffordable housing, based on their survey in addition to data sourced from the National Statistics Office. As the increase in housing prices con- tinued to outstrip the increase in wages, employees have been forced to ask for higher wages to pay for such housing. In turn, given the shortage of skilled work- ers, employers have had to increase their wages to retain staff. Will this lead to a wages spiral? Better not, so watch out for new initiatives by the Housing Authority.