The Bank of Portugal announced a recommendation of “New limits to the maximum maturity of new mortgage loan operations according to the age of borrowers” . This is to accelerate the convergence of the average maturity of new mortgage loan contracts until the end of 2022.

The measure takes effect on April 1 and banks will have to take into account the new recommendations. The maximum maturity of these credits must be 40 years, for borrowers aged less than or equal to 30 years. A 37-year term for borrowers over the age of 30 and less than or equal to 35 years, and a maturity of 35 years for borrowers over the age of 35.

In December 2021, the average was at 32.6 years. In order to accelerate the convergence towards the 30 years of maturity, the Bank of Portugal introduced new references.

The Bank of Portugal introduced recommendations for the granting of loans for housing and consumption in July 2018, when there was a need to give signals to the market that there should be limits to avoid situations of default and avoid problems regarding disposable income. In fact, these measures also serve to ensure that banks do not need more capital due to deviations in these business segments.

At that time, the Bank of Portugal determined several recommendations, including the convergence of the maximum term of 40 years to an average convergence of 30 years in the new housing credit contracts that now adjust to the age of the customers.

A measure that arises because in 2021 there was a deviation in this convergence. In the third quarter of 2021, 48.9% of the credit granting operations contracted were contracted with a term between 35 years and 40 years. This did not point to the convergence determined in July 2018, the 30-year maturity in average terms.

At that time, other indicators were also recommended: the loan value must be equal to or less than the measure between the housing appraisal and the acquisition value, as well as the effort rate, relative to disposable income (50%) to avoid the fall of income is a risk for banks.

Measures that had an impact on the default on mortgage loans, because the banks in the system complied with the recommendation and when they did not, they would have to explain it to the banking supervisor.

In December 2019, financing for home purchase was still at 94% of the property value, but today it is below 90%.

The Bank of Portugal's recommendations since 2018 had, according to some studies by the supervisor himself, a positive impact with regard to non-compliance. This recommendation was important so that the default rate with the banks was lower.

Sources:

Expresso

Dinheiro Vivo