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Banks Lend €25 Million a Day in Mortgages

13 June 2018

The new housing loan rate is the highest since 2010.

Banks in Portugal are still extending loans at a rapid clip. In the first four months of the year, new housing loans totalled €2.97 billion, according to figures released yesterday by the Bank of Portugal. It is the highest figure since 2010. On average, the banks are loaning approximately €25 million per day so buyers in Portugal can acquire homes.

Despite the higher rate of lending, repayments continue to outstrip new loans. Therefore, the total amount of outstanding loans fell by 409 million euros 92.8 billion. Nevertheless, and despite the fact that the banks are reducing the total level of loans on their balance sheets, the Bank of Portugal announced in February that it would recommend that banks comply, as of July, with limits on the concession of loans, looking to stem the rapid pace of the increase in new credit.

In its latest financial stability report, the central bank, which is headed by Carlos Costa, said that its goal is “to prevent the financial sector from taking excessive risks in new loans to families, in an environment where it is beginning to note reduced restrictiveness in the criteria for evaluating creditworthiness, while anticipating that this trend could accelerate.” The regulator’s recommendations include limits on the value of the loan in relation to the property value (LTV) and caps on households’ expected effort rate during the entire duration of the loan.

In addition to greater willingness to lend, banks are also reducing the rates they charge. On average, the cost of new housing loans in April was 1.46%, down from 1.57% at the end of 2017. The Bank of Portugal explained that “the recovery of the economy and the housing market, combined with depressed short-term interest rates, creates incentives for greater competition between banks and a consequent loosening of lending criteria.”

Original Story: Dinheiro Vivo – Rui Barroso

Translation: Richard Turner