Bank of Portugal to tighten criteria for mortgage applications

The Bank of Portugal is to tighten the criteria for mortgage applications to avoid banks making risky home loans where mortgage repayments eat up 50% of family incomes.

The state’s guarantee of support for young people up to the age of 35 in housing loans has led to an increase in high-risk loans, and therefore the Bank of Portugal will tighten the lending criteria, reducing the ceiling on the debt-to-income ratio.

The government’s public guarantee to cover mortgages for young people as part of the affordable housing package measure has seen a soaring demand for mortgages which have exceeded €108Bn.

Reacting to the Bank of Portugal’s decision, Miguel Maya, the president of high street bank Millennium BCP said: “looking solely at reducing the debt-to-income ratio, I think that’s very good. One thing is having a Loan-to-Value ratio (LTV) of 90% or 100%. Another is the concern that families have the capacity to repay the banks and maintain a balanced life.”

The number of secured loans in default are very low. BCP has six cases. But I understand the measure: we will be more cautious to ensure that, in the face of unpredictability, families have greater reserves.

The current loan to income rate in Portugal is 50%, but under new proposed rules that will fall to 40%.

Source: Negócios; Credits: BdP