Banks implemented only 36% of the 56,000 interest support requests

Between November 2023 and February 2024, banks processed 56,855 requests for temporary interest support and executed them in 20,352 contracts. In other words, only 36% of orders were executed.

In the same period, institutions processed 25,879 requests for temporary benefits confirmation and implemented 8,636 of them. That is only 33.4%. The data is contained in the 2023 Behavioral Supervision Report, which was released Wednesday.

The implementation of the measures taken by the previous government fell far short of what was promised.

The previous government's Cabinet approved three measures in the field of housing credit to mitigate the impact of rising interest rates on households, with key goals and objectives, but the reality is that the eligibility of mortgage loan holders has become highly conditional.

In support of the benefits, the then Minister of Finance, Fernando Medina, expected that about 200,000 families would benefit from the expansion compared to a measure that was initially very poorly understood. The former government official said, in the press conference after the Council of Ministers, “The measure could include about 200,000 families. This is the estimate we have in this regard.”

If it is true that the mortgage interest subsidy was theoretically extended to cover more households, the annual subsidy could now be up to 800 euros per year (80 more than initially planned) and the norm became the indicator used to calculate the house premium above 3%. It is also true that customers of banks with older contracts were surprised by the exclusion of the supplementary element (known as business credit) from the interest subsidy.

Although the previous government said that “this measure applies to credit contracts for acquisition, construction or works in private and permanent housing,” and that “the interest subsidy includes contracts concluded until March 15, 2023, and loans with an initial value of up to “a maximum of 250 thousand euros.” “The fact is that a mortgage loan that was used to make a down payment for the purchase of a home, which was common before the current limits on the loan-to-value ratio (the ratio between the loan amount and the value of the property provided as security), is excluded. This is because the technical classification of these mortgage loans , which mimic in every way private and permanent housing loans, were classified with other categories (multi-purpose, multi-purpose) that were not provided for in the decree law that constituted the government interest subsidy.

With this exception, the bonus measure was very limited, because it placed clients with an effort rate below the 35% stipulated by law to be eligible for state support measures.

In fact, when looking at the 2023 Behavioral Oversight Report data, it appears that the primary reason for temporary interest support requests not being implemented is because the borrower's effort rate is less than 35%. Of the 56,855 bank applications, 27,934 applications were excluded. This reason explains 71.3% of rejection cases.

“For temporary interest support requests executed for the period between November 2023 and February 2024, the average monthly support value was €62,” the report issued yesterday explains.

“For the 36,503 interest subsidy applications rejected between November 2023 and February 2024, the main reasons for not applying the measure were that the borrower’s effort rate was less than 35% (71.3% of rejected applications) and the borrower’s annual income was above the maximum specified in the legal diploma (4.4% of rejected applications).”

The famous measure to fix the house's installation was also much less than what was promised by Fernando Medina. The measure, which took effect on November 2, 2023, allows personal and permanent housing loan borrowers to limit their installments for 24 months. The value of the fixed installment is calculated taking as a reference 70% of the 6-month Euribor rate, plus SpreadProvided contractually.

The Minister of Finance revealed at the time that the mechanism to provide stability in providing housing loans should include between 900,000 and one million families, but the truth is that only 8,636 contracts benefited from it.

“With this measure, there was an average reduction in the premium of 76 euros,” the Bank of Portugal said.

The main reason for rejection cited by organizations was the customer's failure to confirm the order (88% of orders were rejected) after receiving information about the new payment plan.

For the 17,243 utility installation requests that were rejected between November 2023 and February 2024, the main reasons for not applying the procedure were “lack of confirmation of the order by the customer (87.8% of rejected requests) and the fact that the credit contract is incomplete.” Present in PARI – Action Plan for Default Risk (4.3% of rejected applications).”

The report reveals that between November 2023 and February 2024, credit institutions implemented installment stabilization in 0.8% of the total eligible contracts, which is equivalent to 1.6% of the outstanding amount in question.

The Bank of Portugal indicates that permanent home equity credit contracts signed up to March 15, 2023, that are not in default and have a variable interest rate and a remaining term of more than five years, are eligible for the application of this measure.

According to the report, this measure was implemented in contracts with an average duration of 36 years and an average remaining term of 29 years, both of which are higher than the average contractual and remaining terms of eligible contracts (34 and 21 years, respectively).

ECB interest rates have already begun to reverse their upward trend, and the new government does not plan to repeat the actions taken by Medina. The only measure expected in the Luis Montenegro government's credit program is the creation of a government guarantee to allow 100% bank financing for youth.