The Bank of Portugal has decided that Portugal’s lenders have been advancing too much money to the nation’s borrowers and is imposing restrictions to limit mortgages and personal credit.Loan-to-value limits for property lending will be capped at 90% of banks’ valuations, unless the bank owns the property in question, in which case 100% is OK.
The 40-year mortgage is history as well, with a new limit of 30 years now insisted on.
Any bank breaking these guidelines will have to explain, on a case by case basis, why they did so, leaving the door open to ‘favoured’ customers to carry on as before.
The Bank of Portugal is well aware of last year’s €13 billion splurge on property lending as the market roared ahead after years of stagnation. It now is concerned that borrowers are over-extending their finances to afford a roof over their heads.
The guidelines include a limit for monthly repayment amounts which must represent 50% of less of the applicant’s income, net of taxation and social security payments.
The Bank of Portugal's recommendations cover the granting of mortgages and consumer credit and will come into effect this summer.
"This macro-prudential measure is applicable to contracts entered into after July 1, 2018 and covers all credit institutions and financial companies with headquarters or branches in Portugal, authorised to grant this type of credit in Portugal," states the regulator.
At the beginning of December, 2017, the Bank of Portugal reported in the Financial Stability Report that a tightening of the evaluation criteria by the banks when granting credit, was needed given the evolving risks to the financial system.
"It is fundamental that financial institutions continue adequately to assess the creditworthiness of borrowers, avoiding excessive risk-taking in new credit flows, particularly in mortgage lending," said the Bank of Portugal at that time.
The implementation of these new measures, which are a recommendation and not a requirement, will be monitored by the Bank of Portugal to check if they are being followed.
This monitoring will be done "at least once a year," thus leaving adequate leeway for banks to exceed the criteria unchecked, for long periods.
The Bank of Portugal also announced today that Portugal’s public debt rose to €242.6 billion at the end of 2017, an increase of €1.6 billion compared to the end of 2016 but down on the August figure of €250.3 billion.
