Rising interest rates “the most serious problem affecting Portuguese families”
The Council of Ministers approved three measures today to mitigate the impact of rising interest rates on Portuguese families paying mortgages.
The measures were announced by Finance Minister, Fernando Medina, who said “today is the moment to take new measures in response to what is undeniably the most serious problem that Portuguese families are facing.”
Said Medina, the measures involve reducing and stabilising monthly mortgage payments, reinforcing temporary interest rate subsidies, and extending the suspension of the early repayment commission.
The minister said up to one million families could be covered by the installment stabilisation or reduction measure, while around 200,000 families may benefit from the measure related to the reinforcement of the temporary interest rate subsidies.
The first measure consists of reducing the interest rate by 30% for two years. It applies to all those with housing loans for their primary and permanent residence at a variable interest rate or mixed interest rate in a variable interest rate period. Those on fixed-rate loans are excluded, Medina explained.
In other words, for two years, “customers will be able to request from their bank a proposal for a fixed installment for two years or a lower installment than what they currently pay.”
This reduction is achieved “since the decree-law stipulates that, in the new proposal, the implied interest rate for the two-year period should not exceed 70% of the six-month Euribor,” the minister said.
As RTP explained, in practice it’s a moratorium, as what is not paid in the first two years will have to be repaid in the following four years after the interest rate freeze.
“After the two years, we return to the general contract terms and, after four years from the start, we begin repaying in each installment what was the postponement of the capital that was not amortised in these first two years,” explained the Minister of Finance.
If interest rates decrease during the two-year fixed-rate period, Medina explains that people “have the right to return to the installment of their original contract.” On the other hand, if interest rates increase, customers can return to the extraordinary regime again.
This “is an important measure,” the minister argues, stating that “Portuguese families need tranquility, they need to have confidence.”
Requests for the implementation of this measure can be made until the end of the first quarter of 2024, and the measure applies to loans contracted until March 15, 2023. After the request is submitted, banks have about 15 days to make a proposal, and families have 30 days to provide the conditions for their response.
The second measure approved by the government involves strengthening interest rate subsidies (‘bonificação’), increasing the support for interest rate subsidies on housing loans from €720 to €800.
“What we are doing with this decree is a significant expansion of the people who can benefit from this subsidy and an increase in the maximum amounts from which people can benefit from this subsidy,” explained Medina.
He added that the government has significantly lowered the access threshold for the measure, which means that, currently, the threshold will be set at a benchmark of 3%.
“In practice, this means that, according to these terms, all contracts are currently eligible,” he explained. In cases where the debt-to-income ratio is higher than 50%, the subsidy increases from 75% to 100%. Meanwhile, when the ratio is between 35% and 50%, the subsidy becomes 75%.
In other words, the current credit subsidy will be simplified and expanded. The goal is to help those with a debt-to-income ratio exceeding 35%, and it is intended for those earning up to €38,632 per year, which is up to the sixth income tax bracket (IRS).
The third measure involves extending the suspension of the early repayment commission for housing loans – a measure that “significantly limited early repayments,” according to Medina.
“With the elimination of this requirement, an additional €6 billion of housing loans were repaid,” he explained.
The measure, which had already been implemented in 2022, will be extended until the end of 2024.
“Early repayment will be in effect until the end of 2024, with the possibility of renewal or even permanent integration into legislation,” clarified Fernando Medina.
Criticism from opposition parties
Luís Montenegro, leader of the main opposition party PSD, said the measures should have been implemented sooner and lack ambition, although he recognised that they have “some positive aspects”.
André Ventura from CHEGA was more damning, describing the measures as “palliative” and stressing that they leave out “hundreds of thousands or even millions of tenants and do not solve the housing credit problem.”
Bloco de Esquerda coordinator Mariana Mortágua says that “the people lose and the banks make a profit” with the new measures, while the spokesperson for PAN, Inês de Sousa Real, chalked the measures up to a “handful of nothing.”