Negative Euribor rates now in effect: good news for families, but a headache for banks.
Against the wishes of the banking sector in general and the Bank of Portugal itself, negative Euribor rates are now a reality as of Thursday, July 19, 2018, benefiting Portuguese families with a reduction in their monthly mortgage payments. At issue is the legal obligation for banks to reflect all negative rates, resulting from the ECB's monetary policy, in mortgage contracts. We explain everything about the new regime in force.
The law, which stems from a joint proposal by the PS and the Left Bloc, had already been approved by Parliament and promulgated by the President of the Republic, and has now been published in the Diário da República, taking effect as of today.
What changes with the new law?
The downward trend and entry into negative territory of the Euribor allowed families to reduce their mortgage payments due to the lower weight of interest charges. However, in the vast majority of cases, banks only assumed a 0% rate, without reflecting the negative Euribor values.
The new law requires banks to fully reflect the sum of the spread and the interest rate (Euribor) in mortgage contracts, even if it is negative. In addition, the regulation provides for the establishment of an interest credit to be repaid in future mortgage installments.
Which bank customers are eligible?
Without exception, all variable-rate loans, whether new or old, are covered by this legislation promoted by the left. But beware: the law will not apply retroactively. This means that it only applies to situations that arise from now on.
Who stands to gain from the new law?
Portuguese families are the big winners in this battle between MPs and the banks, which has resulted in a law that allows bank customers to be paid for debts they have taken on.
The main beneficiaries of the measure are customers who took out mortgages more than a decade ago, when banks offered spreads of 0.2% or even 0%. These are the ones who will be able to take advantage of the negative Euribor rate: -0.332% for three months, -0.269% for six months, and -0.179% for 12 months. Today, the scenario is completely different, as there are no spreads below 1% on the market.
How will banks have to return negative interest?
In order to protect the sustainability of the national financial system and avoid problems for banks arising from the new regime, the law states that institutions are not obliged to deduct the value of negative interest from the current mortgage payment. In other words, they can do so later, reducing the value of the payment in periods of positive interest.
Thus, according to the law published in the Official Gazette, “when the calculation of the interest rate results in a negative value, this value must be reflected in the credit agreements,” and “the negative value calculated must be deducted from the outstanding principal in the installment due.”
Even so, the lender “may choose to grant the customer a credit in an amount equal to the negative values calculated (...) to be deducted from the interest due, from the moment these become positive, with the interest due being deducted from the credit until it is extinguished,” the law states.
Source: Idealista news