Bank of Portugal wants to make mortgages harder to obtain

The Bank of Portugal reports that it is considering taking measures to raise the bar for those applying for mortgages.

The bank is considering the imposition of firmer criteria for Portugal’s high street lenders when assessing the ability of individuals to meet monthly mortgage payments.

The firming up of guidelines was reported in the bank’s Financial Stability Report, released on Wednesday, in which the Bank of Portugal warned that current low interest rates mean that Portugal's banks are more likely to advance mortgages to those with less ability to pay, especially when rates go up.

Mortgage rate spreads have been falling, which creates "additional pressure on banks' profitability." "Although the spreads currently applied are above pre-crisis levels, they already are at relatively low levels in the context of the euro area," notes the Bank of Portugal.

The Bank of Portugal also is concerned at the recent increase in the average credit maturity to 33 years (as at the end of 2016,) which is a European high. Banks are also lending an increasing percentage of the valuation of the property, the so-called Loan to Value ratio.

This all adds up to the Bank of Portugal deciding that Portugal’s lenders should be more restrictive when it comes to advancing mortgages, a decision that will not appeal to thosde involved in Portugal’s property sales market who have been increasingly reliant on easy-to-obtain mortgages to help them shift units.

Another worry for the Bank of Portugal’s governor, Carlos Costa, is what happens when interest rates go up, “leading to higher government spending on interest payments, with an impact on the country’s fiscal performance.”

Costa’s incisive report concludes that “it is essential to pursue policies that promote the sustainability of public finances and potential growth."

Comments  

+1 #4 Emma B 2017-12-11 17:20

Mortgages can be to some, a huge burden and best to be avoided.

0 #3 Denby 2017-12-11 09:36

Interesting that Islamic Banking should be mentioned, as this was one of the first Banking systems in the world which began in the 8th century.
In fact the Crusaders coming back from Africa and the Middle East, brought with them the knowledge of finance and investment which they learned from their encounters with the Muslim world. This was the beginning of finance and investment in England.

+3 #2 Dennis.P 2017-12-10 11:14

This is one of the oddities of the fusion of Graeco-Roman with Islamic banking. Intense examination for the little people as here with mortgages. But for those with large country estates, an oasis or two and influence - no problem. No formal check of ID (everybody knows you, sir!), no linkage to assets or security and no further questions why the money is to be paid into young off-springs accounts. Thereby joining the trillion euros of unsecured non-performing loans in eurozone Banks.

+4 #1 nogin the nog 2017-12-08 13:17

hmm
Sustainability of public finances .
With the state of the some what poorly run banking system. I would sooner put my trust in a second hand car sales man..

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