Fernando Medina
Fernando Medina Image: Carlos M. Almeida/ Lusa

Government sets out to increase mortgage support for families

Finance minister Fernando Medina makes pledge in interview with Público

In an interview with Público published yesterday Finance minister Fernando Medina stressed further measures of mortgage support for Portuguese families will be coming… in September.

But almost as soon as this positive soundbite (explained with a lot of mathematical jargon) was announced, consumer association DECO Proteste said “what the minister has announced is what is (already) happening in the market…”

What is more, it is not really a useful solution.

Essentially, Mr Medina went into the (marked) increases in monthly installments assailing families with variable rate home loans, saying that “the priority of the government is to mitigate the effects of the speed and intensity of interest rate rises at a time when uncertainty remains as to the growing weight of housing costs in housing budgets”.

DECO has no argument with this, but the solution seems to be no solution at all.

According to Medina, the answer lies in the “possibility of using fixed rate regimes, or at least fixed rate regimes during a certain period (…) We are talking about this being available to those who already have mortgages”, he stressed.

Público’s journalist tried to point out that this was already happening within the market, but Mr Medina insisted that the government’s ‘solution’ was for it to be allowed to happen ‘across the board’ (in other words, not simply offered for new mortgages).

This is where the whole ‘announcement’ fell down, in DECO’s mindset, as the association explains anyone and everyone who is approaching their bank to ‘renegotiate’ mortgage repayments is being offered a fixed rate ‘solution’ – and only in “some situations” is this actually advantageous for the borrower/s.

Nonetheless, a scenario where all banks were open to the renegotiation of mortgage contracts WOULD be a better one than exists now, according to DECO economist Nuno Rico, who has told CNN Portugal that “on the whole banks are reluctant” to renegotiate. When they do, they offer the possibility of a fixed rate deal, but this is rarely ‘competitive’ – meaning some banks will be more helpful than others but clients are not in a position to ‘shop around’ as they are already in a situation of financial difficulty.

In more serious cases, banks tend to offer the possibility of a few years in which mortgage repayments are reduced by customers simply paying the interest on their loans (but not the loan itself).

As to the rest of Mr Medina’s announcement, it concerned percentages of the ‘effort level’ in household budgets, and at what point banks would be required to renegotiate terms. 

Talks with the banks are ‘ongoing’, while the intention of the government is for any extra measures of support agreed to remain in place for the next two years.

The date of September was given because the government is still ‘in talks with the Portuguese banking association’ and unlikely to have reached any kind of agreement beforehand.

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