This is a promised measure to mitigate the impact of higher interest rates on home loans: the government will start passing a regulation requiring banks to renegotiate the terms of a home loan whenever the level of effort reaches 40% of the household budget and has deteriorated by 5 percent. points for the last year.
This Effort Factor represents the portion of the family budget that is used to pay off all of the family’s loans, such as mortgages or other personal loans.
The news, published by the Negócios newspaper and confirmed by RTP, states that in the most serious cases, when the effort level reaches 50%, a review with the bank should be immediate, without the need to accumulate the 5 percentage points increase criterion over the last year.
The initiative may come from the client, but the bank must have mechanisms in place to identify such situations and must provide solutions within 15 days.
The Bank may propose a change in the spread, indexed interest rate or maturity, but without exceeding the limits set in the recommendations of the Bank of Portugal.
According to the Bank of Portugal, there are one million families with mortgages. And the average effort is 17%.
90% of mortgages have an interest rate of less than 27%, which means that if problems arise, less than 10% of families who pay their house to the bank will have them.
Taking into account the Euribor values for 3, 6 and 12 months, which are expected for July 2023, Banco de Portugal’s calculations indicate an average increase in the contribution to the house by 100 euros during the year.
That could increase the effort rate to 23% – still far from the 40% that should be included in a government diploma.
Where there may be more problems is among young people who bought a house less time ago, have higher loan amounts and have many years of debt ahead of them.
But even for those under 30, the effort rate is currently 19%, according to the Bank of Portugal. An increase in interest rates could increase the rate up to 28%.
Thus, it is a political measure that works more like a safety net and in practice should be applied to several families.
The goal is to activate all the alarms, in the families and in the banks, so that everyone is there and act as soon as possible so that there are no big problems.
