Interest rates set to soar

news: Interest rates set to soar

THE COST of borrowing in Portugal is set to rise in 2006, increasing financial difficulties for mortgage holders while increasing profits for savers.

The recent petrol price hikes within the Euro zone countries and, as a consequence, inflation have forced the European Central Bank to raise interest rates. Swiss investment bank UBS Warburg predicts that interest rates will rise to three per cent by September 2006, which represents a 50 per cent increase on the present interest rates.

The increase, according to Portuguese consumer watchdog Deco Proteste, means that families that currently pay a monthly mortgage of 400 euros on a 100,000 euros loan over 25 years will now have to find an extra 56.6 euros per month. For those paying off a mortgage over 30 years, the increase represents an extra 59.2 euros per month that they will have to find.

Consumer magazine Dinheiro e Direitos warns: “Given the high rate of debt that the Portuguese are in at present (on average 118 per cent of total income), the eventual interest rate rise, especially on the cost of property borrowing, will have a negative impact on families. This could spell the end of the era of cheap borrowing as credit becomes more costly and more difficult to obtain.”

On average, mortgage borrowing represents 80 per cent of all Portuguese household debt, whereas 10 years ago the average family borrowed 35 per cent of its total income.

However, it is good news for savers and could mean that the Portuguese start to think more carefully about pensions and medium and long term saving plan schemes.