Housing affordability remains a hot topic in Malta, as property prices continue to rise, making it challenging for many to step onto the property ladder. The KPMG - MDA Construction Industry and Property Market Report 2024 provides critical insights into affordability trends, financing options, and policy considerations. Here’s a closer look at the affordability landscape.
1. The Price-to-Income Ratio (PIR): Is Housing Becoming More Affordable?
The Price-to-Income Ratio (PIR) is a key metric that compares median property prices to median household income. A lower PIR suggests that housing is more affordable, while a higher ratio indicates that property prices are outpacing income growth.
Key Findings:
- In 2024, the PIR improved slightly, dropping to 14.2 from 14.8 in 2023, meaning income growth outpaced property price increases.
- However, affordability remains significantly worse than in 2017 (PIR = 13.8), highlighting how real estate has become progressively harder to buy over time.
- The median price of an apartment in Malta is €285,000 in 2024, compared to €200,000 in 2017—a 42% increase over seven years.
- Meanwhile, median equivalised net income increased only 37% over the same period, meaning wages have struggled to keep up.
What This Means for Buyers:
- Wage increases have helped offset rising property costs, but the gap between income and home prices remains significant.
- For low-income buyers, the minimum down payment required for a mortgage remains a major hurdle.
- Single earners and minimum-wage workers struggle the most, requiring additional financial assistance to secure homeownership.
2. The Housing Cost Overburden Rate
The housing cost overburden rate measures the percentage of households spending more than 40% of their disposable income on housing costs, including rent, mortgages, utilities, and maintenance.
Key Findings:
- 6.0% of households in Malta fall into this category in 2024, double the rate of 2.9% in 2023.
- The EU average is 9.0%, meaning Malta still performs better than many other European countries.
- Households in lower income brackets remain particularly vulnerable, especially those without access to financial support from family.
Why This Matters:
- A rising overburden rate suggests that more households are struggling to keep up with housing costs.
- Rising mortgage payments and rental prices could push more people towards smaller, lower-quality properties or longer mortgage terms.
- The government’s intervention through subsidized electricity rates and stable mortgage interest rates has helped ease affordability pressures.
3. Mortgage Eligibility & Bank Lending Criteria
Most home purchases in Malta are financed through bank mortgages, making loan eligibility criteria a major factor in housing affordability.
Impact of Central Bank of Malta Directive 16
This directive regulates residential real estate loans to prevent excessive lending risks. It sets:
- Loan-to-Value Ratio (LTV-O): First-time buyers can borrow up to 90% of the property’s value (meaning a 10% deposit is required).
- Debt Service-to-Income Ratio (DSTI-O): Monthly mortgage payments cannot exceed 40% of net income.
- Loan Maturity: First-time buyers can take loans up to 40 years, while second-home buyers are capped at 25 years.
What This Means for Buyers:
- Stricter lending rules have limited borrowing power, especially for those purchasing a second property.
- First-time buyers still benefit from the 90% LTV, reducing their upfront cash burden.
- Interest rates have remained stable, unlike in other EU countries where rate hikes have made mortgages less affordable.
- However, with rising property prices, the minimum 10% deposit requirement is increasingly difficult to meet.
4. What Could Different Buyer Profiles Afford in 2024?
The report outlines different affordability scenarios based on income levels and mortgage eligibility. Here’s a breakdown:
Scenario 1: A Young Couple with Elementary Jobs
- Combined annual income: €32,000
- Loan eligibility: €240,000
- Max property price they can afford: €266,667
- % of available apartments they can buy: 33.1%
- Affordability trend: Worse than 2023, as the percentage of affordable properties has dropped from 38.7%.
Scenario 2: A Young Couple on Minimum Wage
- Combined annual income: €22,208
- Loan eligibility: €167,000
- Max property price they can afford: €185,556
- % of available apartments they can buy: 5.7%
- Affordability trend: Slight improvement from 4.4% in 2023, but still very challenging.
Scenario 3: A Young Couple Earning Average Salaries
- Combined annual income: €46,614
- Loan eligibility: €360,000
- Max property price they can afford: €400,000
- % of available apartments they can buy: 78.7%
- Affordability trend: Stable – this category continues to have good access to the market.
Scenario 4: A Single Professional
- Annual income: €53,350
- Loan eligibility: €338,000
- Max property price they can afford: €375,556
- % of available apartments they can buy: 74.5%
- Affordability trend: Still strong – single high earners can comfortably purchase property.
Scenario 5: A Single Minimum Wage Earner
- Annual income: €22,407
- Loan eligibility: €164,000
- Max property price they can afford: €182,222
- % of available apartments they can buy: 5.2%
- Affordability trend: Extremely difficult – nearly impossible to buy without financial help.
5. The Role of Family Support & Government Incentives
A key hidden factor in Malta’s housing market is family financial support. Many young buyers receive down payment assistance or inherit property, helping them bypass affordability constraints.
Government Support Initiatives
- First-time buyer grants & tax incentives reduce upfront costs.
- Social housing programs provide alternatives for low-income households.
- Green loans & energy efficiency grants make sustainable homes more affordable.
Challenges with Current Policies:
- While incentives help, they do not solve underlying supply & demand issues.
- Residency schemes attract foreign investors, increasing demand in the mid-to-high property range, competing with local buyers.
- Regulatory hurdles slow down new development, keeping prices elevated.
6. Key Takeaways
- Affordability improved slightly, but low-income buyers still struggle.
- Minimum-wage earners & single buyers face major challenges.
- Stricter bank lending rules limit borrowing power, but first-time buyers still benefit from 90% LTV loans.
- The rental market is booming, making property investment attractive.
- Government incentives & family support play a crucial role in homeownership.
Conclusion
Malta’s housing affordability crisis is not as severe as in previous years, but homeownership remains out of reach for many young & low-income earners. Without policy changes, affordability gaps will continue to grow, shifting demand towards rentals & alternative financing solutions.
