Portugal’s public mortgage guarantee for young people a mirage

Young people will still have to put down a 10% deposit on their first home in most municipalities in Portugal despite a government backing to cover 100% of their mortgages.

In other words, under the terms of the government’s new affordable housing policy, the government will only provide a public guarantee to cover mortgages for the under 35s in seven out of the 23 most populated municipalities in Portugal.

Portugal’s low salaries, coupled with skyrocketing house prices in recent years, continue to be major stumbling blocks for young people trying to get their first foot on the housing ladder.

Ricardo Sousa, CEO of Century 21 told the online news source ECO: “Low incomes and job insecurity in first offers of employment are the main factors that make it difficult for young people to access their first homes”.

Moreover, macro prudential rules currently in force that demand that young people put down a minimum 10% deposit in the value of the property plus purchase costs remain a significant barrier to acquiring their own homes.

For example, in Lisbon a 60m2 property would cost almost €300,000 on average according to data from Confidencial Imobiliário based on average house prices in 2023. Taking into consideration that 75% of young people earn less than €1000 net per month, no bank can lend more than €88,000 under Bank of Portugal regulations that stipulate that a home loan may not exceed 50% of net income.

That means that to get a mortgage on a €300,000 home, a young person would have to stump up a deposit of €165,000 (56% of the value of the purchase) on a 40-year Euribor index- linked mortgage with a 1% spread. (An extreme example to be sure)

So, the public guarantee that was recently approved at the Council of Ministers meeting on May 23, which gives a public guarantee for young people under 35 of up to 15% of the value of the transaction on properties up to €450,000, means in practice that the chance of being able to afford a deposit in Lisbon or Porto is largely a mirage.

And according to calculations made by on-line news site ECO based on a net income of €1,000, a young person will only be able to get a mortgage in 30% or 23 of Portugal’s most populated municipalities (+100,000 inhabitants) without having to stump up a 10% deposit on a 60m2 home.

In fact, the public guarantee does not mean in practice buying a home with a 10-15% discount. It just means that the State with the banks will allow young people to get a mortgage within the limit of their incomes and the value of most properties fall outside these incomes.

The public guarantee may indeed mean that some young people can have access to a mortgage, but in cities like Lisbon, Cascais, Oeiras and Porto, even with State help, the amount of deposit needed to buy a home in these municipalities is still almost impossible for anyone on a net income of €1000 or less.