By the end of this year, banks must comply with the Bank of Portugal's (BdP) recommendation that new housing loans have a maximum average maturity of 30 years, whereas in 2020 the average maturity was 33.2 years. The BdP's recommendation has been in place since 2018, when the banking regulator and supervisor created restrictions on the granting of new loans.
Among the measures put in place were limits on the effort rate (families can only spend half their income on bank loans), limits on the value of the loan in relation to the property given as collateral (the ratio must have a limit of 90% in loans for own and permanent housing) or limits on the maturity of loans (it recommends a maximum of 40 years as the duration of new housing loan contracts and loans with mortgage guarantees).
The banking supervisor and regulator explained that the aim is for banks not to take on excessive risks with new loans and for customers to be able to pay off their debts.
The aim is to push back the maturity
In housing loans, the BdP also recommended that "the average maturity of all new contracts should gradually converge to 30 years by the end of 2022".
According to the BdP, gradual convergence is understood as "an annual reduction, tending to be linear, of the differential observed between the average maturity of new 30-year loans", in order to avoid an "abrupt reduction in maturity" of housing loans, loans with a mortgage guarantee or equivalent.
Since 2018, the BdP has issued reports monitoring the implementation of these measures, and the next one is due out in the first half of this year.
Average maturity increased in 2020
In the latest report, from March 2021, the BdP says that the banks respected the 40-year maximum maturity limit for new operations, but that the average maturity of housing loans even increased in 2020.
"Regarding the evolution of the average maturity of new home loan operations, despite the decrease from 33.5 years to 32.6 years between July 2018 and December 2019, there was an upward trend in 2020. At the end of 2020, the average maturity stood at 33.2 years, higher than the 30-year threshold set for the end of 2022," reads the monitoring report.
However, the analysis carried out showed an increase in the average maturity of new home loan operations, which stood at 33 years in 2020, a figure similar to that recorded when the Recommendation was implemented in July 2018," reads the report.
In Portugal, maturity is higher than the EU average
The central bank says that, in Portugal, the average maturity of new home loan operations is higher than in the European countries for which this information is available.
“Despite an increase in the average maturity of housing loans in other European Union countries between 2018 and 2019, Portugal continues to stand out for having an average maturity of new housing loan operations of more than 30 years, while most other countries have an average maturity of between 20 and 25 years,” the report reads.
According to the BdP, a high average maturity "implies an increased risk for institutions", as they will be more exposed to "fluctuations in the economic and financial cycle over a longer period" and also "reduce the flexibility to restructure loans for borrowers in financial difficulties".
New home loans on the rise
According to data released by the BdP, banks lent 2,061 million euros to individuals last November, the highest monthly amount since 2021. For housing loans, banks lent 1,353 million euros, 7% more than in October and 22% more than in November 2020.
The amount lent in November for house purchases was only surpassed by the amount lent in July (1,385 million euros) and March (1,382 million euros).
Between January and November, a total of 13,773 million euros were lent for home loans, 35% more than in the same period in 2020.
source:idealistanews