Since 2010, core domestic banks have been drastically lowering their exposure to the construction and real estate sector, down by around five percentage points to 12.1% of their loans by end 2016.

However, the growth in mortgage lending resulted in a higher concentration of property-related loans, equivalent to around 59% of the core domestic banks’ resident loans.

The growth in mortgage lending resulted in a higher concentration of property-related loans, equivalent to around 59% of the core domestic banks’ resident loans

Growth in resident lending was driven by mortgages, which increased by 7.7% picking up some momentum towards the end of the year. In contrast, resident consumer credit contracted further, declining by 5.5%.

Lending remains conservative with the residential loan-to-value ratios averaging around 75%. The average loan for residential property amounts to about 4.3 times the annual income of the buyer.

A report on financial stability for 2016, released today by the Central Bank of Malta noted that this shift in exposures from the construction and real estate sector towards mortgages implied a lower concentration of risk as lending was spread among a larger number of smaller borrowers rather than concentrated on a small number of large borrowers.

It also said that the ability of borrowers to repay mortgages was generally determined by developments in the labour market and the economy in general, rather than concentrated on the fortunes of the real estate market.