Portugal’s banking regulator issued the warning, which said many households might face being unable to meet their mortgage repayments in the future if banks fail to put the brakes on in time.
The stark warning came as the Portuguese real estate industry continued to experience a marked recovery, with consumer confidence at an all-time high while an increasing number of people were finally finding employment and a stable income.
But the Bank of Portugal was not entirely convinced that the growing economy would mean banks should become more lenient in the issuing of credit. In fact, the institution said it believed banks may already have overstepped the line, and suggested the reins be pulled in as they were in the years which immediately followed the credit crunch.
The Bank of Portugal was particularly concerned that citizens who were already covered in debt were finding ways to continue to access financing, and werecalling for greater restrictions. It also expressed worry that the rising property prices in Portugal has been leading to a relaxation of criteria used by banks in issuing mortgages.
In its December report, the Bank of Portugal also argued that the protracted low interest rate environment should continue to put pressure on the Portuguese banking sector’s net interest income and profitability.
The Bank of Portugal further made the obvious observation that low-income earners posed the greater future risk.
According to the central bank, there were numerous families with a very high proportion of debt in relation to their earnings. It said that those earning the least were also at the greatest risk, as a loss of job or income, coupled with the inevitable increase in interest rates, could place them in serious danger of defaulting on their mortgage repayments.