Signing Promise of Sale in Malta
The process of buying a property in Malta is a little different from other countries, like Sweden or the UK and from the sounds of it, I much prefer how it's done on this little island. A Promise of Sale is something you don't have in the UK, but here it protects the buyer (they won't sell it to someone else for a higher price) and the seller (they can't back out at the last minute for no good reason).
So what is a promise of sale in Malta?
When buying property in Malta, you usually check in with the bank first and see if you're eligible for a home loan. If they say yes, and you're happy with the terms, you can start looking at apartments. Find one you like, offer a price and, if the owner accepts, sign the promise of sale to hold that property for the both of you until all the admin is done.
And there is a lot of admin. A notary needs to go through all paperwork since the beginning of time, from when the property was just land, checking every purchase to ensure that the current seller is, in fact, the rightful owner of the property and OK to sell it to you.
Then, as a buyer, before handing over the full amount you'll need to get the bank loan (unless you have cash of course) which can take a few weeks and also have an architect look over the property to ensure it is compliant and has no nasty surprises.
Preparing to sign your promise of sale
Choose your notary
Set a date/time with you, the notary, the seller and the estate agent (if using one)
Send the notary any special terms you want (e.g. how long to have the promise of sale, any special works you want the current seller to complete)
Paying the deposit + notary fee. Deposit is usually 10% (but depends on the agreement you have with the bank) and notary fees can range from 1 - 2%. Be prepared either with a cheque or come prepared to make the bank transfer to the notary.
Who keeps my deposit?
You should pay the deposit, or 'down payment' directly to your notary. They will keep hold of it for the term of the promise of sale, then if all goes well, pay it to the seller once the final contract is signed. Should the deal fall through (you don't get a bank loan, the building is condemned) they will pay it directly back to you.
How much deposit you need to pay will depend a lot on your bank. This is why I recommend a pre-meeting with at least one bank in order to find out, on the surface, if you're eligible for a loan and if they'll give you 90%, 80% or something different.
I had to pay 10% of the house price as my deposit, plus 1% fee to the notary. The notary had expected me to come with a cheque for the amount but hadn't told me in advance so, of course, I didn't have it. I was able to do a bank transfer instead but it's good to remember that BOV, for example, has strict limits on how much (even of your own money!) you can send. I had to send a small amount that day, then I had to call again the next day, have my limit increased and send the rest, then sent the proof to the notary.
Depending on how much your deposit is, you might have to split the bank payment over many days, as BOV won't increase your limit above €25,000 for one day, so make sure you prepare and discuss how you will pay with your notary in advance.
How long is a promise of sale?
You can decide on the Promise of Sale term, but most people go for 6 months as that's how long it generally takes for everyone involved (bank, notary, architect) to get everything in order to complete the purchase. So, from the day you sign, the promise of sale means the buyer can't back out (unless it's found that the seller is not the rightful owner, the building is not compliant or the bank denies the loan) and the seller can't sell to another buyer for any reason. Without this POS, either side can back out even until the very last moment, offering no security for anyone. Heard of gazumping in the UK? We don't have that here!
It's possible to have a longer or shorter promise of sale, but the important thing is that buyer and seller agree and that the notary, architect and bank get everything done within that time. Extensions can be made but they need to be made in time otherwise the buyer can end up losing their deposit.
What if I don't get a bank loan?
There are 6 basic terms that should be in all Promise of Sale documents and one of them states that the contract is subject to the bank loan. You pay the deposit amount (how much will depend on what the bank stated in your first meeting) upon signing and in case the bank later denies your loan, you must update the notary and seller before the POS expires in order to get your deposit funds back immediately.
Important terms for the promise of sale
You can speak to the notary and the seller to add in extra terms if there are more things important to you, but the 6 standard terms it should always include are:
the property is covered by all necessary building permits and sanitary laws
all fees relating to the property (architect fees, building fees, any outstanding bill) are to be paid by the seller before the contract ends
the seller guarantees there are no pending or threatened litigation or disputes concerning the property
the seller must provide an Energy Performance Certificate
the sale is subject to notary searches being in order
the sale is subject to the purchaser getting a bank loan.
But, as the buyer, you will be paying the notary for their work so speak with them beforehand and see what they recommend to be included in the POS.
What happens once I sign the promise of sale?
Once, as a buyer, you have signed the promise of sale, you need to get busy. Appoint the notary to start the searches, employ the architect to complete their checks and get to the bank ASAP to make sure you are approved/denied the loan in good time. Whilst the promise of sale is 6 months, the approval of the bank loan is 4 months, so you need to get that sorted ASAP. If 4 months pass and you haven't got the bank loan and do not update the notary/seller then you are bound by law to still buy the property, so if you don't get the loan after that time, you're in trouble.
So work fast, push and push the bank and make sure to keep the notary updated as much as possible in case extensions are required.
The process so far
Initial bank meeting (are you eligible for a loan and on what terms)
Find a property, make an offer, have the offer accepted
Sign Promise of Sale
Officially apply for the bank loan
Getting rejected for a home loan
Setting the contract date to sign for your apartment!