Rising interest rates have increased mortgage payments for most Portuguese families, and those who have closed credit contracts more recently are subject to higher penalties. The December 2022 figures revealed yesterday by the National Statistics Institute (INE) showed that the average values of the home loans paid to a bank amounted to 299 euros, the highest amount in 14 years. Taking into account the new contracts -concluded in the three months prior to December- their value amounted to €536, the highest amount since the beginning of this statistical series that dates back to 2009.
Between the end of 2021 and December of last year, the average cost of granting mortgages increased by 18%, about 46 euros. New home loan installments are even higher. Those who contracted financing in the last months of 2022 pay, on average, 536 euros. This is an increase of 44% compared to the average premium verified in December 2021 for loans made just three months earlier.
This rise was attributed to the increase in the implicit interest rate in housing credit contracts, which accelerated in December by 30.1 basis points compared to November to 1.898%, the highest value since 2012. It doubled. In Portugal, unlike other European countries, the vast majority of housing loan contracts (more than 90%, according to the latest data from the Bank of Portugal) are variable rate. The deterioration of the average premium is mainly due to the increase in Euribor prices, which rose rapidly. After many years in negative territory, these indices have risen to their highest values since 2009, reflecting the significant increase in reference rates by the European Central Bank (ECB). For example, the six-month Euribor went from -0.539% at the beginning of 2022 to the current 2.832%.
This trend means that the implicit interest rate in home purchase contracts has also increased considerably. This past December was the ninth consecutive month that the situation has worsened. The cost is even higher in the most recent contracts, going from 2.365% in November to 2.715% in December. At the end of 2021, the rate on contracts written in the last three months was just 0.795%, showing how quickly the costs of new loans have skyrocketed.
In addition to the interest effect, the higher average equity debt value also helps explain the higher bill with home loans. In December, the average amount owed for all contracts entered into increased by €241 compared to the previous month, reaching €62,004. Compared to the end of 2021, the increase was 4,140 euros. These figures are even higher in the most recent Home loans, since the average amount owed amounts to 130,000 euros, an increase of 1,038 euros compared to November and an increase of 12,238 euros compared to December 2021. This indicates that the amounts required to banks to buy housing. are rising, which may reflect higher home loan prices. According to the latest data from the National Institute of Statistics, in the first nine months of 2022 the housing price index increased by 10%.
Faced with extremely high inflation, which reached 9.2% in December, the European Central Bank began, in July of last year, to raise reference rates at an unprecedented speed. The main refinancing rate went from 0% to 2.5%, which pushed the Euribor up.
The central bank warned that rising interest rates would not stop there and that further increases would be needed to control inflation. “Our intention at the central bank is to bring (inflation) back to the 2% target in due time,” Christine Lagarde told the Davos Economic Forum yesterday, citing Lussa. As she spoke, the ECB president took the opportunity to stress that, despite high inflation and high interest rates, the current year “will not be great, but it will be much better than feared.” The official added that this is because the labor market, particularly in Europe, “has never been so dynamic”, with the number of unemployed at “the lowest level in the last 20 years”.
Economists expect a further 0.5 percentage point increase at the next meeting of the European Central Bank, which is scheduled for February 2. Last December, the Central Bank had already raised interest rates for that amount. But the minutes of that meeting, released yesterday, revealed that many central bank officials wanted a more forceful escalation.
Renegotiate and reduce the IRS
Given this context of sharp deterioration of the bill with the provision of housing credit, the government has adopted some measures to help alleviate the pressure. At the end of last year, the Executive Power approved a diploma aimed at facilitating the renegotiation of credits for families who have difficulties to bear the increase in premiums. After some skepticism about whether the use of this tool could entail a punishment for those who did it, the Bank of Portugal came to clarify this week that they were not “classified” as risk clients. In other words, customers who embark on the restructuring of their mortgages before the new transitional regime will not be ‘marked’ and will be penalized to obtain new loans in the future, for example.
In addition to the possibility of renegotiation, this month the possibility of requesting a voluntary reduction of the withholding tax for housing loan holders came into force. According to the 2023 State Budget, employees who earn up to 2,700 euros per month can request this measure.