“Debt service charges on bank loans for housing, mostly contracted at variable interest rates, have been increasing”, says the BdP in the Financial Stability Report of November 2022. And house expenses will continue to increase, as the regulator led by Mário Centeno says that the evolution of Euribor rates at 3, 6, and 12 months is expected until December 2023, which can reach values in the order of 3%. It should be noted that the daily 12-month Euribor is already approaching 3%.
It is on the basis of this evolution that the BdP estimates that the total value of the house payments paid by individuals in housing loans will rise from around 390 million euros, in June 2022, to 520 million euros, in December 2023 (+75 %). This value translates into an average home loan of 279 euros in June 2022 and 371 euros at the end of next year. In other words, on average, families will have to pay another 92 euros on their mortgage.
“The higher debt service charges on housing loans will contribute to the increase in the average loan service-to-income ratio (LSTI, Loan service-to-income) by 4.8 percentage points (p.p), until December 2023, to 21.5%”, concludes the Portuguese regulator. And based on the evolution of wages from work since the date of the last reported income update until 2022 and 2023, the BdP estimates that the effort rate to pay housing credit will exceed the red lines next year in several households.
Default risk is increasing
“The economic slowdown and the rise in inflation, combined with additional increases in market interest rates, could deteriorate the financial situation of individuals, especially among the most vulnerable and in a context of low savings rate, increasing their risk of default”, states the BdP.
This is one of the consequences of the pressure on family budgets exerted both by the rise in interest rates on housing loans (and consumer credit) and also by the high inflation that is felt in the country, a rate that reached 10.1% in October. But not all home loans will suffer from interest rate hikes in the same way.