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On October 19, 2023, Rui Barros, Rosa Soares, and José Alves introduced a simulator in the Portuguese newspaper, Público.

This tool is designed to help homeowners understand the potential reduction in their housing installments through the fixation of the Euribor rate. This article delves into the details, implications, and benefits of this innovative tool for homeowners.

Background: The global rise in Euribor rates has placed numerous families under financial strain. In response, the government, in collaboration with the banking sector, has formulated a strategy that allows homeowners to reduce and "freeze" their housing installments for a span of two years. This initiative is governed by the rules set out in Portugal Decree-Law No. 91/2023, dated 11th of October.

Functionality of the Simulator: The simulator, while strictly confidential, prompts users to input specific details about their housing credit. It's important to note that no personal or contract-specific information is requested, and none of the data entered is stored. The main goal of this tool is to provide an estimate, which should be validated with the individual's bank for precise figures.

Eligibility for Fixed Installment: The facility is accessible to all individuals with loans for the acquisition, construction, or renovation of their primary residence. The loan should be variable-rate, linked to the Euribor rates, or mixed-rate in its variable phase, with a repayment tenure exceeding five years, and must have been availed before 15th March 2023. It's imperative that all installments are up-to-date, with no defaults or insolvencies. There are no restrictions based on household income or loan amount. Loans undergoing renegotiation under specific frameworks or those meant for second homes are excluded from this measure.

Mechanics of Installment Reduction: The essence of this initiative is to renegotiate housing loans by temporarily setting an interest rate cap. This cap will be pegged at 70% of the six-month rate from the previous month, which, as of September, stood at 4.030%. The installment amount is then recalculated based on this new rate, ensuring a consistent reduction.

Duration of the Reduced Installment: Homeowners can enjoy the reduced rate for a period of 24 months, after which it will revert to the prevailing market rate.

Cost Implications: There is no direct state assistance or forgiveness associated with the reduction. The deferred amount will eventually be borne by the client, either as a lump sum after 24 months or spread across the remaining loan tenure. This spreading can commence four years after the reversion to the normal calculation, allowing families time to stabilize financially.

Application Process: Interested homeowners can apply for this measure starting 2nd November, with the window closing on 31st March 2024. Banks are mandated to offer this facility to eligible applicants. Once an application is submitted, banks are required to respond within 15 days, providing simulations of the reduced installment. Homeowners then have a month to decide on the offer.

Transparency and Protections: Banks are prohibited from increasing the spread, altering loan conditions, or imposing additional fees during this period. While the restructuring is reported to the Credit Responsibility Center, it's categorized as a regular renegotiation, distinct from a default-induced one.

Flexibility & Options: Should the Euribor rate drop below the fixed rate, the application of the measure will be temporarily halted and will automatically resume if the rate increases. Homeowners have the prerogative to opt-out of the program at any point, reverting to their original loan terms. They also retain the right to make partial or full early repayments. This measure can be combined with other relief solutions, such as interest rate bonuses.

In summary, this initiative offers a respite to homeowners grappling with rising Euribor rates, ensuring they have the flexibility and support to navigate these challenging times.

You may also like to read:
Understanding Recent Updates to Housing Loans: Your Essential Guide (September 2023) (urbamarkt.com)
State Budget 2024: How It Affects Real Estate in Portugal (urbamarkt.com)
Renting Process & Contracts in Portugal: All You Need to Know (urbamarkt.com)

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Marisol Ferreira