Inflation is not stopping – this week the OECD announced that inflation reached 10.5% in September, two tenths above its recorded value in August – and the ECB responded by raising interest rates. And Christine Lagarde is uncompromising: the increases continue to meet the medium-term target of 2% inflation. Two factors that disadvantage people with a home loan.
With this in mind, the government passed a decree-law that sets the limits above which banks must allow customers to renegotiate home loans.
This renegotiation can be done when the effort percentage reaches 36% or when there is a deterioration of five percentage points. The idea is to regulate the negotiation process between banks and customers in loans for their own and permanent housing, to mitigate the impact of rising interest rates on household net income. However, if the effort percentage reaches 50%, i.e. when half of the family income is used to pay the benefit, renegotiation becomes mandatory.
“In the event of difficulties that could jeopardize the fulfillment of the credit, there will necessarily be a negotiation process and a negotiation proposal. Several solutions are possible. We may face situations that may be the extension of the credit term, we may face credit consolidations, we may face a new credit, we may face a reduction in the interest rate for a period of time. There will be a clear condition: there may not be an interest rate increase’, explains the State Secretary for Finance.
João Nuno Mendes also said that the 36% marks what the government understands “about the level of effort that should deserve special attention for the bank and the customer”, noting that the diploma not only places the initiative of the bank side, can the customer decides to talk to his bank if he notices that his financial situation is deteriorating. And he recalled that while interest rates are not yet at what is considered high, they have been rising very quickly.
Among the solutions that can be used in the renegotiation are the extension of the credit term, the consolidation of credits, the realization of a new credit or the reduction of interest and interest rates for a certain period, according to João Nuno Mendes, explaining that “There will be a clear condition, namely: no interest rate hike may take place».
Under this diploma, banks will have to pay attention to the effort of customers who have credit contracts for permanent housing with an outstanding amount of up to 300 thousand euros. Whenever they detect a significant increase in effort rate or a significant effort rate, they are required to assess its impact on the client’s financial strength and any risk of default, and must present business solutions to clients. Executive.
The suspension of the commission for the early repayment of the loan is also provided for in this diploma, whereby the measure is only aimed at loans intended for own and permanent housing and at a variable rate. “From the date the diploma takes effect, the early credit penalty will no longer be paid,” he said, stressing that this measure, in effect until the end of 2023, aims to remove what could be a hinder bank customers.
Measures can go further
For Nuno Mello, an analyst at XTB, at a time like the current measures to ease the pressure on the family budget are always welcome. However, at Nascer do SOL, he says the government could have gone a little further and, like what happened during the pandemic, could have adopted a system of moratorium on banks.
Or else: «freeze the payment of house payments, in contracts indexed to Euribor with a floating rate, during the period when the ECB’s policy rates remain high, to avoid the impact of the rise in interest rates and inflation. in family budgets and minimizing default’.
Avoid situations of non-compliance? According to the analyst, everything will depend on the sense of responsibility of Portuguese banks in renegotiating home loans, as it is only necessary to present a renegotiation proposal, based on a scenario of deteriorating interest rates of 3%, with the effort rate exceeding 50 %. “The swap market currently has a nearly 51% chance of a 75 basis point increase at the December meeting of the ECB and predicts yields to hit 3% by 2023,” he notes.
With regard to the debt limit of 300 thousand euros, Nuno Mello reminds that, according to the housing credit barometer 2022, the Portuguese will spend on average 186 thousand euros to buy a house, a value that is still much higher than the 149 thousand euros that were paid in 2020. registered. This shows that the «limit of 300 thousand euros seems appropriate to me, not least because those who have loans of larger amounts than this will initially have better financial conditions to absorb the rise in interest rates».
It is recalled that the average interest rate on new home loans reached 2.23% in September, the highest value since October 2015, the Bank of Portugal (BdP) announced. And in September, the majority (87%) of the amount of new home loans used the 6- or 12-month Euribor as an index.
In that month, banks issued 2,006 million euros in new loans to individuals, 136 million euros more than in August: 1,338 million in home loans, 467 million in consumer loans and 201 million in credit for other purposes.
The values recorded in August were 1,217, 482 and 171 million euros respectively. In other words, this means that banks extended more loans in September than in August.
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