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."