The rise in interest rates has led to an increase in mortgage payments for most Portuguese households, and those who have entered into credit agreements more recently face more severe penalties. Figures for December 2022 revealed yesterday by the National Institute of Statistics (INE) show that the average value of loans paid to the bank has risen to 299 euros, the highest amount in 14 years. And taking into account the new contracts – concluded in the three months leading up to December – the value rose to 536 euros, the highest amount since the beginning of this statistical series, which dates back to 2009.
Between the end of 2021 and December last year, the average cost of providing home loans increased by 18%, about 46 euros. The repayments of the new loans are even higher. Anyone who has taken out financing in the last months of 2022 will pay an average of 536 euros. This is an increase of 44% compared to the average term verified in December 2021 for credits made just three months ago.
This increase is explained by the increase in the implied interest rate on home loan contracts which accelerated in December by 30.1 basis points compared to November to 1.898%, the highest value since 2012. Then doubled. In Portugal, and unlike other European countries, the vast majority of home loan contracts (more than 90%, according to the most recent data from the Bank of Portugal) have a variable interest rate. The deterioration in average terms is mainly due to the rise in Euribor rates, which rose rapidly. After many years in negative territory, these indices rose to their highest levels since 2009, following the European Central Bank’s (ECB) aggressive rise in benchmark interest rates. For example, the six-month Euribor went from -0.539% at the beginning of 2022 to the current 2.832%.
Due to this trend, the interest rate implicit in purchase contracts for homes also rose sharply. Last December was the ninth month in a row that there was a deterioration. Costs are even higher in the most recent contracts, which rose from 2.365% in November to 2.715% in December. At the end of 2021, contracts made in the previous three months had a rate of just 0.795%, demonstrating how quickly the cost of new loans escalates.
In addition to the interest rate effect, the higher value of the average capital debt also explains the increasing bill for mortgages. In December, the average amount due of all concluded contracts increased by 241 euros compared to the previous month to 62,004 euros. Compared to the end of 2021, the increase was 4140 euros. These figures are even higher for the most recent loans, where the average amount owed was 130 thousand euros, 1038 euros more than in November and an increase of 12,238 euros compared to December 2021. This indicates that the amounts transferred from banks demand for house purchases is rising, which may reflect the rise in house prices. According to the latest data from INE, the house price index increased by 10% in the first nine months of 2022.
more climbs
Faced with very high inflation, which reached 9.2% in December, the ECB started raising benchmark interest rates at an unprecedented pace in July last year. The main refinancing rate rose from 0% to 2.5%, which caused the Euribor to rise.
The central bank has warned that the rate hike will not stop there and that further hikes will be needed to keep inflation under control. “Our determination at the central bank is to (bring inflation back to) the 2% target in a timely manner” by “taking all measures to achieve it,” Christine Lagarde said at the Davos Economic Forum yesterday, quoted by Lusa. During her speech, the ECB president also took the opportunity to underline that, despite high inflation and higher interest rates, the current year “will not be brilliant, but much better than feared”. This is because the labor market, particularly in Europe, “has never been more dynamic”, with the number of unemployed “at its lowest level in the last 20 years”, the official added.
Economists expect a further 0.5 percentage point increase at the next ECB meeting, scheduled for February 2. Last December, the central bank had already raised interest rates by that amount. But minutes of that meeting, released yesterday, revealed that several central bank officials wanted an even more aggressive escalation.
Renegotiation and less IRS
Given this context of sharp deterioration of the home loan bill, the government has taken some measures to ease the pressure. Late last year, the executive branch approved a diploma that aims to facilitate credit renegotiation for families struggling to support the increase in installments. After some doubts about whether using this tool could penalize those who did so, Banco de Portugal came to clarify this week that they are not “marked” as high-risk clients. In other words, customers who proceed to restructure their home loan in the light of the new transitional regime will not be “rejected” and will, for example, be penalized for new loans in the future.
In addition to the possibility of renegotiation, the possibility came into effect this month to request a voluntary reduction in withholding tax for holders of a home loan. According to the 2023 national budget, this measure can be applied for by employees who earn up to 2,700 euros per month.
Sara Ribeiro is a journalist for Dinheiro Vivo
Source: DN
