Support for home loans: how does it work and who can benefit?

The constant interest rate rises by the European Central Bank (ECB) have caused Euribor rates to soar, which has a direct influence on the instalments to be paid for home loans in Portugal. The government is paying attention to the issue and has approved new support measures, which include fixing the amount to be paid to the bank for the loan to buy a house for two years. However, there are rules and criteria to take into account. We explain everything in this week´s Deco Alerta article.

The weekly Deco Alerta feature is produced by Deco - Associação Portuguesa para a Defesa do Consumidor* for idealista/news and is aimed at all consumers in Portugal,

I would like to ask you to clarify some of the support measures that the government has put in place to help families in difficulty, in an attempt to prevent them from defaulting on their home loans. 

With interest rates on home loans rising and inflation high, it is certain that more and more families are struggling to meet their loan repayments, especially on home loans.  

So, in response to your request, we´ve explained some of the support and measures available to help consumers pay their monthly instalments.

Temporary fixing of mortgage instalments

As of 2 November, consumers can ask their bank to fix their home loan instalment. Loan holders with a variable rate who access this instrument will pay a lower instalment for two years, as it will be indexed to 70% of the average 6-month Euribor rate for the month prior to the consumer´s request.

Who can access this measure?
Borrowers, i.e. those who have a credit for the purchase, construction or works of their own permanent home, with a variable rate or mixed rate that goes through a variable period, can access it.

It applies to contracts signed up to 15 March 2023, loans that have been renegotiated or transferred to another bank (even if they were done after 15 March) and contracts with a remaining term of more than five years.

Please note: if your loan has a fixed rate, you won´t be able to use this measure.

Does fixing the instalment depend on the effort rate?
No. This measure can be used regardless of the household´s effort rate.

Does this measure have to be requested?
Yes. To do so, the consumer must submit the request to the bank between 2 November 2023 and 31 March 2024.

The credit institution has 15 days to respond to your request and submit:

• An estimate of the amount deferred,
• The indicative repayment plan for the deferred amount,
• A comparison between the instalments charged under the contractual terms and the value of the instalments fixed under the temporary fix;
• A comparison between the credit repayment plan without the application of the measure and the one resulting from the application of this measure.
• You should know that after receiving this information, consumers have 30 days to inform the bank whether or not they want the instalment to be fixed.

Please note: the bank cannot charge you commissions or other fees for using temporary instalment fixing. What´s more, you can withdraw from the fixation and return to the original conditions of your credit before the end of the two years.

What is the impact of this measure on the instalment?
From the moment the request to fix the loan instalment is made, it will remain fixed for two years and will be indexed to 70% of the 6-month Euribor in force on that date.

The reduction in the instalment depends on the characteristics of the home loan contract, such as the outstanding capital, the term, the index and the spread. Here are some scenarios that illustrate the impact of this measure on the instalment in November:

In the event that Euribor rates fall below 70 per cent of the average 6-month Euribor (set at the time the instalment is fixed) - an unlikely scenario, given the ECB´s forecast of inflation above 2 per cent by 2025 - the fixing of the instalment is suspended immediately, to be resumed if Euribor rates rise again.

What happens after the instalment fixation period?
At the end of the fixed instalment period, the instalment will once again be indexed to Euribor and the updates provided for in the contract. From then on, the consumer will have another four years before the bank begins to collect what was missing during the period in which the instalment was fixed.

In other words, at the end of these four years, families will pay, over the remaining years of the loan, the amount that was not paid while they benefited from the current reduction.

How will the amount not paid during the two years be paid?
The amount that was not paid during the two years when the instalment was fixed will be charged from the sixth year after the start of the measure, and will be paid over the remaining years of the loan.

In the case of credit agreements maturing in less than six years, the amount is paid in the last two years of the agreement.

*You can count on Deco´s support by calling 21 371 02 38 or emailing gasdeco@deco.pt. You can also book an appointment via skype. Follow us on Facebook, Twitter, Instagram, Youtube and Linkedin.

Source: Idealista/News