Home Lending Quadruples in Five Years

11 March 2018

The Portuguese, animated by signs of economic recovery and low-interest rates, are buying more homes. The outstanding value of mortgages is already the highest since 2010.

Banks, now that the financial crisis has ended, are once again opening the floodgates to mortgage lending. Home loans totalled 8.259 billion euros last year, up 327% compared to 2012, when it hit a low of 1.935 billion, in the wake of austerity imposed by the troika. Credit has quadrupled in just five years, reaching its highest level since 2010. The increase can be explained by the economic recovery, increased employment, low interest rates and the rising real estate prices. The improvement is largely due to demand by international buyers, growth in the tourism sector and the golden visa program. In the same period, consumer credit rose 110%, and corporate loans fell 36.7%, according to the Ministry of Economy’s Strategy and Studies Office.

“We need to demystify this data. In 2012, [the troika] had intervened in the country, and credit had dried up,” said Luís Lima, president of APEMIP, the association of real estate brokerage firms. The growing volume of loans for home purchases “does not signify a recovery,” as the amounts that are being borrowed are still a long way from pre-crisis figures. “It is starting from a very low base,” he stressed. In 2007, banks granted 19.630 billion euros in mortgages.

Mr Lima also sees no call for alarm, nor any danger of a real estate bubble. “The credit that is being granted these days is not easy credit,” the banks “are no longer lending 100% of the value of the property, valuations are restrictive, and buyers must make down-payments of 20% to 30% of the cost of a home.” The executive admits that some are “wary of repeating past mistakes,” but “the banks are fulfilling all their requirements.”

The Bank of Portugal has demonstrated concern regarding the accelerated pace in the concession of new loans, warning of the risk of excessively loose lending by some banks. The institution led by Carlos Costa has already pointed out the adverse effects of the high indebtedness of individuals, especially in a context where interest rates will increase. He fears that problems with loan defaults may worsen.

The increase in loans and the rise in bank property valuations, which reached 1,150 euros per square meter in December, the highest since June 2011, is causing increased levels of outstanding debt. At the end of last year, the Portuguese owed, on average, 51,690 euros in mortgages to the banks, up from a low of €51,512 in April 2017. The growth in loans is justified both by the increase in the number of operations and the value of each loan, says the GEE.

Mr Lima believes that the middle class is behind the increase in the demand for credit since the Portuguese have no other alternative rather than purchasing their homes. The rental market is highly constrained, and prices are not sustainable. Another point to note is that foreigners use loans when they buy. “Foreign investments are self-financed.”

Original Story: Diário de Notícias – Sónia Santos Pereira

Photo: Maria João Gala / Global Imagens

Translation: Richard Turner