Home equity release could be one way of helping to guarantee better living standards for the elderly, according to Mario Vella, the Governor of the Central Bank of Malta.
Addressing the annual dinner of the Institute of Financial Services (IFS) Malta on Friday evening, Dr Vella said: “We have a situation where many elderly persons are asset rich but cash poor. They live on relatively modest pensions while residing in large and relatively expensive homes.
“This creates issues for financing long-term care, as many find it difficult to sell their homes outright in order to go into a private home.”
He added: “If, in the coming years, we manage to come up with ways of releasing part of the equity in homes, this could raise the supply of available housing and reduce the pressure on State long-term care institutions and hospitals while guaranteeing better living standards for our elderly.”
Dr Vella said this needed to be done carefully, sensitively and in a well-regulated environment, and explained that financial institutions could have a key role to play in such a situation.
The Central Bank Governor told his audience that the rental market is another area where action was needed “with due consideration of the trade-offs involved”.
He said measures that are too restrictive could take the country back to when the rental market was utterly dysfunctional. “On the other hand, we should not shy away from reforms that facilitate better functioning of the market. We need more legal clarity about the rights and obligations of landlords and tenants. We also need to have this market operate in the formal economy, with rent contracts duly registered,” he said.
Dr Vella also called for changes in the social housing market, saying that once allocated, social housing tends to become a lifetime entitlement.
“We need to change this so schemes activate and empower individuals rather than encouraging passivity. Such a transition could itself be helpful in financing the expansion of social housing.
“Instead of seeing social housing as a passive benefit, we can eventually develop projects which become to an extent self-financing, through a combination of housing provision and programmes to enhance employability, enabling individuals to pay market rents. The financial sector could play a role here,” he said.