The International Monetary Fund (IMF) estimates that house prices in Portugal are overvalued by 20%, although they are falling, and warns that banks must prepare for possible risks related to defaults on housing loans.

The position was conveyed by the IMF director for Europe, Alfred Kammer, in an interview with Lusa agency in Brussels regarding the Fund's annual meeting, in which he stated that in Portugal, “the prices of residential properties are overvalued at around 20%”.

Stressing that this is a similar trend to that recorded “in several European real estate markets”, Alfred Kammer told Lusa that there is now “a slowdown in the growth of house prices, but also a risk that the correction in property prices could be faster”.

Due to the impacts of Covid-19 and the war in Ukraine caused by the Russian invasion, house prices in Portugal have been rising sharply, "pulled" by the lack of supply, rising construction costs, licensing restrictions and also the inflationary context.

This high inflation has even led to successive increases in interest rates in recent months, in a tight monetary policy carried out by the European Central Bank (ECB) to reach values of 2% (when now they are around 4% in the eurozone and Portugal ) to ensure price stability.

“Banks in Europe and Portugal are solid, but they must prepare for these cases, in which mortgage holders will be affected in terms of income. In Portugal, interest rates reach those who have loans quickly, since 90% of credits have variable and floating interest rates, so banks must prepare for more households in difficulty”, he said.

“Our recommendation, for Portugal, is to create a ‘cushion’ for banks’ sectoral systemic risk, so that they can secure some capital to deal with families when they are entering a situation of danger”.