[ad_1]
Portugal’s central bank is preparing to tighten rules regarding home loans (mortgages).
Reports today stress that the ongoing stampede for credit – with mortgages being conceded to households that are already spending 50% of their income on securing the roof over their heads – is fast approaching the situation in 2006 and 2007, before the ‘sub-prime property crash’ that triggered worldwide financial recession. The Bank of Portugal “wants to avoid problems in the future”, explains Expresso.
“The measure that will be presented to banks next week, and should enter into practice by the start of the summer, involves reducing the “maximum effort rate” that borrowers can reach,” says the paper, adding: “Right now, this rate (known in the sector as DSTI, standing for ‘debt service to income’) is at 50%”, which is already stretching many households uncomfortably.
According to Expresso, the bank is preparing to reduce this DSTI by between 5-10 percentage points, which, it acknowledges, will leave some people who have, up until now, been securing credit, out of luck – but better out of luck than what could happen if interest rates rise too high.
The paper adds that last year, 94% of mortgages saw borrowers taking on DSTIs equal or below 50%, while 4% were taken out where people/ families/ households were spending up to 60% of their incomes on home loans. In 2% of cases, mortgages were given to people whose DTSI was “above 60%”, according to BdP figures – thus it is easy to see how risks are stacked up in a context where interest rates are rising.
Says Expresso: “The risk is real considering the war in the Middle East and rising prices within the European economy. In the first meeting following the start of the conflict, at the end of April, the European Central Bank maintained interest rates, but the possibility of increasing them in June is real – and even without this, Euribor* rates are rising, with predictions pointing to a 0.6 point increase above the current level by the end of this summer.”
*Euribor rates are those set by eurozone banks for the lending of unsecured funds.
Source: Expresso
[ad_2]
Source link
