Industry welcomes effort rate review but warns of rising defaults and risk of new property bulge

Agencies and real estate advisory firms foreshadow a possible increase in household debt or a new property bubble, but stress the importance of the measure, especially for young people. The revision of the calculation of the degree of financial stress in obtaining a mortgage loan, announced over the weekend by the Bank of Portugal (BdP), is generally met with approval by real estate market participants.

The agencies and advisory firms interviewed by ECO nevertheless warn of possible consequences such as possible over-indebtedness of families, increased risk of default or even a new property bubble. "It is prudent to review macroprudential recommendations," stated Clara Rapozo,''vice-governor of the Bank of Portugal, in an interview with Antena 1 and Jornal de Negócios, noting that "there is currently a desire" to make a decision as early as this year to allow more families to access the loan.

According to the BdP, the degree of financial stress corresponds to "the proportion of a family's income devoted to repaying the loan" and is "a measure of a family's ability to fulfill its loan obligations." The BdP's current recommendation is that the degree of financial stress should not exceed 35%.

The views of market participants

Ricardo Souza, CEO of Century 21, notes that he has already supported this revision "since the beginning of the year". "In the context of negative interest rates, it was important to be able to model the extent''financial strain with values above the reference rate because an increase in interest rates was inevitable,' he notes.

But, according to Ricardo Souza, given that EurIBOR is 4%, "an additional financial strain of 3% results in such a high degree of financial strain that it deprives many families and young people of the possibility of obtaining a mortgage loan".

"The revision of the conditions for obtaining a mortgage loan will be a useful measure if a wider range of families can access a mortgage loan," says Patricia Barau, head of residential real estate at consultancy firm JLL. "All measures aimed at making it easier to access credit and buy a home are positive and always''are supported by us,' says Era Portugal CEO.

Possible consequences

"In fact, the scoring system that was implemented when calculating the degree of financial strain was conservative and denied many families access.

"When we evaluate the tax burden when buying a house, including stamp and transfer taxes, we realize that the most direct way to facilitate access to housing is related to direct tax incentives for Portuguese citizens," offers the person in charge of Era.

The CEO of JLL draws attention to the need for the existence of a 'risk-sharing between''family debt, a possible increase in default risk, higher interest rates due to increased default risk and therefore a negative impact on financial stability,' he argues.

The Imovendo CEO also believes that in the long term, the BdP measure could contribute to a new property bubble and a continued rise in interest rates. "For a healthy real estate market, it is important to have affordable mortgage credit and at the same time ensure its stability," Miguel Mascarenhas said in an interview with ECO.

The views of APEMIP and RE/MAX Portugal

"Why now?". The question is posed by the president of the Association of Professionals and Real Estate Intermediation Companies of Portugal (APEMIP),''who believes that "when banks recognize the possibility of widening the degree of financial stress for those who apply for a mortgage loan, they are sending a signal that they trust the value of real estate because it is the guarantee they have when someone cannot meet their payment obligations. "

According to Paulo Caiado, "everyone wins" if the central bank's decision leads to an increase in real estate transactions. "The state benefits because it receives more taxes, and all people in general benefit because the economy becomes more active and there are more economic flows that benefit everyone," the APEMIP chairman said in an interview with ECO.

RE/MAX Portugal says it is "still analyzing the possible direct and''indirect effects' that the measure announced by BdP.