Background information

The current inflation has accelerated the prospects of normalisation of the monetary policy applied by the European Central Bank. This has led to the reversal of the trend towards low interest rates. As a result, there has been an increase in the reference indices used to define the variable component of the interest rate applicable in credit contracts for the purchase or construction of permanent homes.

In Portugal the main type of mortgage credit consists of variable-rate credit agreements. Given the current scenario of rising interest rates, the government deemed it necessary for banks to implement mechanisms to prevent risks and defaults.

The current interest rates are within normal standards. However, the speed of the increase may cause difficulties for household budgets. Timely preventive measures are necessary.

Decree-Law 80-A/2022 establishes measures to reduce the effects of the increase in interest rates on credit contracts for the acquisition or construction of permanent homes.

The measure was discussed under the scope of the Medium-Term Agreement for Improving Income, Wages and Competitiveness .

Content of measure

The government created two measures to respond to the increase in the indexing factors normally used in credits for owner-occupier mortgages:

Assessment of the effort rate and presentation of proposals to clients (article 3 of Decree-Law 80-A/2022)

When the effort rate exceeds 36% or when the monthly loan instalments represent more than 50% of the total income, financial institutions are obliged to assess the customer's financial capacity and present adequate proposals for a resolution.

The risk of default must result from the increase in the loan's reference interest rate and the amount owed may not exceed €300,000.

Customers will also be able to take the initiative to approach the institutions if they face a deterioration of their financial capacity.

In addition to the measures that may be proposed (e.g. the conclusion of a new contract or the establishment of a grace period), there is the possibility of extending the term of the loan with a return to the contractual period before the extension.

The potential change in loan conditions should make it possible to reduce the negative impact of interest rate increases on the disposable income of citizens and households.

Promoting early repayment of loans and boosting competition in the housing credit market (article 7 of Decree-Law 80-A/2022)

The charging of early repayment commission is temporarily suspended if there is a transfer of credit to another institution or the payment of partial repayments. This is only applicable in housing credit agreements at a variable rate, but irrespective of the amount owed.

The suspension of repayment commissions should promote early repayments and contributes to improve the conditions of obtaining credit, as it facilitates credit transfer.

Use of measure

Clients with credit contracts with variable interest rates for the purchase or construction of their own permanent home and with no limit on the amount of capital owed can benefit from this measure.

According to information released by the government, there are around 2.1 million borrowers with home loans, 90% of which have contracts with variable interest rates. In 2021, housing loans amounted to €126.58 million.

Customers with loans of up to €300,000, whose effort rate reaches significant levels or undergoes a relevant increase, are now guaranteed that the banks will present proposals to avoid default and take into consideration their financial capacity.

All mortgage credit customers can access this measure, with no limit on the amount of capital owed.

The renegotiation of mortgage loans has no estimated budgetary impact.

However, the early repayment of mortgage loans, given that the stamp tax charged on the early repayment commission is waived, has estimated costs between €20 and €50 million, depending on the behaviour of the families that adhere to the early repayment.

According to the Observador newspaper on 20 May 2023, the five largest banks operating in Portugal have restructured 31,350 home mortgage loans, including those being restructured under the government decree-law that forces banks to do so for families struggling with the increased interest rates.

Target groups

Workers	Businesses	Citizens
Does not apply to workers	Does not apply to businesses	Other groups of citizens

Actors and funding

Actors	Funding
National government Social partners jointly	National funds

Social partners

Social partners' role in designing the measure and form of involvement:

	Trade unions	Employers' organisations
Role	Agreed (outcome) incl. social partner initiative	Agreed (outcome) incl. social partner initiative
Form	Consultation through tripartite or bipartite social dialogue bodies	Consultation through tripartite or bipartite social dialogue bodies

Social partners' role in the implementation, monitoring and assessment phase:

• Social partners jointly
• Main level of involvement: Peak or cross-sectoral level

Involvement

The measure was discussed under the scope of the Medium-Term Agreement for improving Income, Wages and Competitiveness.

Social partners were involved in the Tripartite Permanent Commission of Social Concertation (CPCS). This group includes government representatives; representatives of employer confederations, i.e., the Entrepreneurial Confederation of Portugal (CIP), the Confederation of Commerce and Services of Portugal (CCP), the Confederation of Farmers of Portugal (CAP), and the Confederation of Portuguese Tourism (CTP); and the representatives of trade union confederations, i.e., the General Confederation of Portuguese Workers (CGTP) and the General Union of Workers (UGT). Their involvement was requested by institutional setting by the initiative of the government. CGTP, the largest trade union confederation did not sign the tripartite agreement, but participated in its discussion at the CPCS rounds.

The agreement is subject to regular evaluations and appropriate readjustments by its signatories at the CPCS:

1. During its validity, annually, at the time of the parliamentary presentation of the State Budget Proposal (taking into account not only the framework and solutions contained therein, but also the framework and guidelines of the Stability Programme).
2. Whenever there is a substantial change in the underlying economic and social conditions.

Views and reactions

While all the employer confederations (CAP, CCP, CIP and CTP) and the trade union confederation UGT signed the tripartite agreement, CGTP did not sign it because they questioned aspects of the measure.

Sources

• 09 October 2022: Acordo de Médio Prazo de Melhoria dos Rendimentos dos Salários e da Competitividade (ces.pt)
• 10 October 2022: Posição da CGTP - Acordo de Médio Prazo de Melhoria dos Rendimentos, dos Salários e da Competitividade (www.cgtp.pt)
• 22 November 2022: Government news on the regulation of renegotiation of housing credits (www.portugal.gov.pt)
• 25 November 2022: Decree-Law 80-A/2022, of 25 november (dre.pt)
• 29 November 2022: Government Q&A mitigation of costs with housing credit (www.portugal.gov.pt)
• 20 May 2023: Cinco maiores bancos em Portugal reestruturaram mais de 30.000 créditos à habitação (observador.pt)