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Mortgage Lending at Eight-Year High
12 September 2018
The Bank of Portugal has still not managed to stem the tide of mortgages flowing to the public.
The concession of mortgage loans for the acquisition of homes has reached an eight-year high in Portugal. If the current pace continues, 2018 may even beat the high last seen eight years ago in 2010, on the eve of the troika’s arrival in Portugal.
In the first seven months of this year, Portugal’s banks lent a total of €5.693 billion in mortgages for the acquisition of housing. That’s €1.19 billion more than the amount lent for that purpose between January and July last year. It is also close to the €6.141 billion registered in the same period in 2010. In that same year, the total value of loans surpassed €10.1 billion.
The Bank of Portugal’s recommendations, which came into force in July this year to stem the flow in the concession of loans to individuals in Portugal, have not yet had an impact. In July, €919 million in mortgage loans were granted to Portuguese households. Though that is slightly below the €990 million in lending in June, it is the second highest figure of the year and a sign that demand remains strong.
“Financing costs remain very attractive,” says Luís Tavares Bravo, an economist at DIF Broker. Portugal has the cheapest housing loan costs in Europe, and the average interest rate fell again in July to a new low. According to data released on Tuesday by the Bank of Portugal, in July, “for new mortgage loans to households, the average interest rate decreased by ten basis points to 1.35%, which corresponds to a new low for the series.”
In the first seven months of this year, Portugal’s banks lent a total of €5.693 billion for the acquisition of housing
Since July 1, the country’s financial institutions have had to consider new conditions when evaluating potential customers’ ability to repay their loans and to define the term of the financing. The measures introduced are aimed at curbing the sharp rise in the demand for credit. New contracts are supposed to conform to specific limits, including ceilings on effort rates and maturities.
“Many of the Bank of Portugal’s restrictions have not yet had a direct impact, as many homebuyers are also switching from previous homes that were sold for profit,” he said. Luís Tavares Bravo also noted that “there is a very favourable perception of rehabilitation as an investment and economic stimulus.”
For investors, the real estate market has been seen as an alternative to other types of assets, such as stocks and bonds, which have “less interesting” returns. Together, those factors have given “additional support to real estate as an asset class.” The economist stated, on the other hand, that “demand continues to be fuelled, to a large extent, by the golden visa program and rising prices in Lisbon and Porto.”
The real estate sector is undergoing a boom in tourism, along with a series of measures that have served to encourage investments in real estate
Lending fell from historical levels in 2011 following the European debt crisis that led Portugal to request a rescue package from international organisations. The increase in the indebtedness of the country and its families is sounding alarms and fuelling fears about a possible new crisis. In Portugal, the real estate sector has experienced a boom in tourism, along with a series of incentives designed to boost investment in the real estate sector.
“There is no reason to sound the alarm regarding consumer loans”
The volume of new lending for consumer loans amounted to €387 million euros in July, slightly below the 419 million euros registered in the previous month but still on pace with the trend in the concession of loans throughout this year. Loans of €143 million were also granted to private individuals for other purposes.
António Menezes Rodrigues, the president of ASFAC – the Association of Specialized Credit Institutions, downplayed any fears regarding the level of consumer loans being granted to families. “I do not think there are any reasons to sound the alarm regarding the concession of consumer credit,” he told DN/Dinheiro Vivo.
“We are still far from returning to the figures seen before the 2008 international financial crisis: 6.191 billion euros in 2017 versus €9.449 billion euros, 34.48% less than in 2008”, he emphasised.
Menezes Rodrigues also highlighted the fall in non-performing loans, “which stood at 12.1% in 2013 and 8.6% at the end of the first quarter of 2018.” Mr Rodrigues argued that “in the current situation, with low unemployment and a growing economy, it is natural that consumption would also increase.”
Original Story: Diário de Notícias – Elisabete Tavares
Photo: Paulo Spranger / Global Imagens
Translation: Richard Turner