Inheritance key to homeownership, but future generations are at risk

A study by the Central Bank of Malta delves into the significant role of wealth transfers, such as financial gifts and inheritances, in shaping homeownership among younger households in Malta.

The study, based on data from four waves of the Maltese Household Finance and Consumption Survey (HFCS), finds that young households receiving such transfers are 15.1% more likely to own a home than those who do not. However, it also shows that only 11.7% of homeowners benefit from these transfers five years before and up to three years after acquiring their first home.

Moreover, as housing costs continue to rise, future generations may not benefit from similar financial support, as their parents are less likely to have accumulated enough wealth to pass down.

The report is authored by economists Valentina Antonaroli, Warren Deguara, and Valerio Sergio Castaldo.

How wealth transfers boost homeownership

Malta's real estate market is currently characterised by high demand, limited land availability, and rising property prices in the context of population growth.

Despite these challenges, the cultural preference for homeownership remains strong, with Malta reporting one of the highest homeownership rates in Western Europe. According to the report, the tradition is partly sustained by intergenerational financial support, which plays a critical role in helping young buyers enter the housing market.

The study showed that larger wealth transfers have a bigger impact, with amounts over €94,604 making people 20.1% more likely to own a home. Furthermore, receiving financial support enables young households to afford properties that are, on average, 31.7% more expensive than those purchased by peers who do not benefit from such transfers. The findings suggest that a 1% increase in transfer size results in a 1% increase in the value of the acquired property.

38% benefit from wealth transfers

Among Maltese homeowners, 38.3% said they had received a financial transfer at some point. However, only 11.7% received what the study calls a 'transfer of interest'—a transfer of more than €10,293 given within the key period around buying a home, which is between five years before and three years after the purchase. This period takes into account cases where homes are bought while still being built, needing extra funding over time.

Of those receiving a transfer of interest, 18.5% received money directly, while 74.1% inherited a dwelling. Within this latter group, around one-third received their gift or inheritance between the ages of 20 and 30, while 37.9% were between 30 and 40 years old at the time of transfer.

This suggests that these transfers are actively used to finance home acquisitions, including down payments and other associated costs. Since younger households have had less time to save, these financial inflows likely represent a substantial portion of their initial investment in property.

On average, Maltese households become homeowners at around 29 years old. When focusing on households aged between 20 and 40, the study finds that transfers are particularly relevant for this age group, as they are more likely to acquire a home around the time they receive financial support.

Implications for housing policy

Furthermore, according to the report, these findings have significant policy implications. With homeownership remaining a priority for many Maltese citizens, policymakers should consider measures to support and facilitate wealth transfers. Potential policy options could include favourable tax treatments for donations and inheritances, financial education programmes to encourage intergenerational financial planning, and initiatives aimed at reducing transaction costs for property transfers.

But the ability of future generations to provide wealth transfers may be constrained. The current generation of parents and grandparents who are assisting younger buyers often benefited from a housing market where mortgages were less burdensome. With property prices continuing to rise, younger generations may face greater financial difficulties in accumulating wealth to pass on to their children.

In light of these challenges, government schemes such as the Deposit Guarantee Scheme—which assists individuals who qualify for a home loan but lack the necessary funds for a down payment—may become increasingly important in ensuring continued access to homeownership for younger buyers.