The Council of Ministers—in parallel with an exceptional and temporary regime for rent arrears and other measures—approved a moratorium on credit for families and businesses on Thursday, March 26, 2020. This measure will ease the burden of repayments for those affected by the negative economic effects of the new coronavirus pandemic and will be in force for six months, until September 30 of this year. We will now explain what it is, how it works, and who can access this scheme.
What is a moratorium? Will I stop paying?
A moratorium is a mechanism that allows for the delay in the payment of a debt, agreed between the creditor and the debtor, in the face of financial difficulties that prevent individuals or companies from fulfilling their obligations. This means that installments will no longer be paid for a certain period, which in this case is six months.
But will I not pay anything? This measure means that the payment of monthly loan installments is temporarily suspended, but it does not mean that the monthly payments do not have to be paid. The amounts will have to be settled within a period of time and under various conditions to be defined.
In practice, the families and companies covered are exempt from paying the principal and interest on the loan for a period of six months, until September 30, 2020.
Who does it apply to?
The moratorium applies to people who are in a “particularly difficult” situation, such as unemployment, simplified layoffs, people who work in establishments that have closed due to the state of emergency or by order of the health authorities, people in prophylactic isolation or illness, who provide care for children or grandchildren. “All people are in a situation of special economic protection,” explained Economy Minister Siza Vieira when presenting these new measures at the end of the Council of Ministers meeting.
This measure applies only to loans for permanent housing, i.e., for a primary residence.
How to activate the bank moratorium?
The minister explained that families in financial difficulty due to the pandemic will have to submit a statement to the bank to be exempt from payments for six months, starting from the moment the customer submits this document.
“People who find themselves in the situations I have just described and who have a loan for permanent housing may request the banks with which they have these loans to recognize the moratorium, and the banks will apply these measures, which take effect on the date the statement is submitted,” he said.
Banks had already warned that they would accept moratoriums. Is this different?
No. Over the last few days, several banks have preempted the government by announcing moratoriums, namely Caixa Geral de Depósitos, Santander, BPI, Crédito Agrícola, and, recently, Bankinter. This decision does not change anything; it simply means that all banks are required to comply with this guideline, at least until September.
Even so, banks have already shown themselves willing to also offer moratoriums on consumer credit, and not just on housing loans—they have even accepted moratoriums of up to 12 months in the case of loans to companies.
During the presentation of the measures, Siza Vieira emphasized that “we have a few weeks ahead of us in which economic activity will be significantly reduced” and that, therefore, “it is important to give our companies and our families the ability to get through these difficult weeks as best as possible so that in June we can take stock from a health and economic point of view in order to find the best way to relaunch our economy.”
The government estimates that the suspension of bank loan payments until September 30, the main measure, will have an impact of €20 billion.