Banco de Portugal sets age limits for mortgages

BdP has put limits on the term of mortgage loans, with customers over 35 years old having maturities of up to 35 years and loans up to 40 years only for those up to 30 years old.

In a statement, the Bank of Portugal (Banco de Portugal) announced the new recommendations regarding the maturities of mortgage loans and mortgage-backed loans, considering that financial institutions did not comply with its recommendation that the average maturity of new mortgage loans converge to 30 years.

For customers over 35 years of age, the credit maturity date must not exceed 35 years.

For bank customers over 30 years old and less than or equal to 35 years old, the maximum credit term should be 37 years.

Finally, for those under 30 years old or equivalent, the maximum tenors for housing loans should be 40 years, says the Bank of Portugal.

These changes take effect on 1 April.

The current recommendation set a maximum of 40 years for the loan term.

According to the regulator and banking supervisor, the goal is that “institutions do not take excessive risks in extending credit, in order to enhance the resilience of the financial sector in the face of potential negative shocks, enhance consumer access to sustainable financing, and reduce the risk of default.”

Banco de Portugal also says that these recommendations aim to “bring the average maturity of new mortgage loan contracts closer to 30 years by the end of 2022.”

In 2018, the banking regulator and supervisor set restrictions on granting new credit.

Among the measures created are effort rate limits (families can only spend half of their income on bank loans), limits on the value of credit against property given as security (the rate should have a 90% limit on private and permanent mortgages) or loan maturity limits ( (Maximum 40 years in mortgage and mortgage-backed loans).

Then, the Bank of Portugal also specified that banks must comply, by the end of 2022, with the recommendation that new mortgages have, on average, a maximum term of 30 years.

Since then, Banco de Portugal has issued monitoring reports on the implementation of these measures. In the latest report, as of March 2021, which was consulted by Lusa, the British Development Bank said that banks had respected the maximum maturity of 40 years in new operations, but that the average maturity of mortgage loans increased at the end of 2020 to 3,2 years, This is a value above the 30-year threshold projected by the end of 2022.

In the same report, the British Development Bank notes that a higher average maturity “implifies increased risk for institutions”, as they will be more vulnerable to “fluctuations in the economic and financial cycle over a longer period” as well as “reducing the resilience of credit restructuring for borrowers who face financial difficulties.

Also in the statement issued today, Banco de Portugal stated that it will monitor the implementation of this recommendation by the banks and acknowledge “the adoption of additional measures it deems appropriate to achieve the target of converging the average maturity of new mortgage loan contracts for 30 years until the end of 2022.”