If you're considering taking out a loan from the bank to buy a house, now is a good time. Spreads are now around half of what they were at the beginning of 2015. What's more, you can count on (still) low Euribor rates. Now, however, you'll have to have a stable financial situation and be able to count on tighter requirements, because the Bank of Portugal has indicated that the national banks must be more restrictive and cautious when granting new mortgage loans.
On average, banks charge 1.34% for new loans, according to the latest data from the European Central Bank (ECB) for October, quoted by Diário de Notícias. At the beginning of 2015, when the spreads applied to mortgage loans began to fall, the interest rate was 2.78%.
In addition to the drop in the banks' profit margins, the fall in Euribor rates also led to interest rates on loans falling to record lows. And, as the newspaper points out, since the variable rate is still predominant in Portugal, this has helped to make the cost of mortgage loans one of the lowest in the eurozone. Only Finland has lower interest rates, at 0.89%. The euro average is 1.80% and in Spain the initial interest on a new loan is almost 2%.
The risk of low spreads
In order to beat the competition, banks have crushed the profit margins they charge on mortgage loans. According to the most recent price lists published by DN, they are between 1% and 1.5%. Last year, the average spread was 1.74%, according to the most recent BdP data. At the beginning of 2015, margins of over 3% were frequently demanded.
And the Bank of Portugal (BdP) is concerned that the spreads applied by banks are getting lower and lower.
"The restrictiveness of other conditions, such as spreads, remained unchanged or was signaled to be decreasing, due to competitive pressures in the credit market," noted the supervisor led by Carlos Costa in the latest Financial Stability Report, released this month.
The BdP noted that since June 2015, banks' margin on the difference between the interest they charge on loans and the interest they pay on deposits has been lower than the European average. It warned that the prices of real estate assets and "the spreads on housing and corporate loans that continue to decline" are the exceptions to the "accumulation of cyclical systemic risk". Low spreads can be a risk to financial stability, as they affect banks' profitability at a time when the sector is still trying to solve problems that were created during the crisis.
Source: idealistanews