Minimum Income Required to Purchase a Property: Conceptual Framework and Application to Malta

Housing affordability for potential first-time buyers has two components – the ability to borrow sufficiently from a bank to purchase a property (purchase affordability) and the ability to maintain mortgage repayments (repayment affordability). This paper focuses on the first element by calculating the minimum income required to purchase a property in Malta. Most methods in the housing affordability literature are inadequate to capture the purchase affordability concept, which is critical for first-time buyers. For this segment of the population, bank lending policies and conditions play an important role to obtain the necessary credit required to purchase a property. A conceptual framework is proposed that recognizes the numerous factors that affect the minimum income required to purchase a property that ranges from bank lending policies, monetary and macroprudential policies, the external macroeconomic environment and individual and household characteristics and behaviour. The analysis points to the importance that young people engage in some element of saving from the first years of their working life to accumulate sufficient funds that are required for them to be eligible for a mortgage.