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New framework housing law will kill Portugal’s mortgage market

By May 16, 2019September 11th, 2021No Comments

A chorus of opposition is growing from the property and banking sector in Portugal over the government’s proposed Framework Housing Law.

Currently being debated in the Portuguese parliament, the new housing law, if passed in its current form, could impose fixed limits on interest charges on mortgage contracts.
The banking sector in Portugal fears that if the Bill is passed it will destroy the mortgage market in Portugal.
Both the Bank of Portugal and the Portuguese Association of Banks have raised concerns about the proposed bill governing Portugal’s housing sector.
“Within the context of an economic recession (in which there is more likelihood of the mortgagee handing back the keys of the property to the bank in lieu of payment), together with a significant reduction in the price of property, the result could be significant losses for the banking sector with implications for the sector’s financial stability and a possible aggravation of the downturn cycle” states the Bank of Portugal.
Pedro Castro e Almeida, President of bank Santander Totta said: “I think that what will happen is that the spreads will become a lot higher and there will be less credit. What we have here looks like an intention to end private property”.
“If this (law) goes ahead I believe it will destroy the housing market in Portugal” he added after the bank had announced profits of €137 million for the first quarter of 2019.
Both the Portuguese Communist Party and the Bloco Esquerda (Left Bloc) are proposing that if, in the case of mortgage default, the keys are handed back to the bank, then the loan is effectively cleared.
The proposed bill was delivered to parliament in April reinforcing the role of the State in guaranteeing housing to vulnerable groups through social housing or promoting affordable rents.
The new law aims to regulate the housing sector in Portugal. One of the proposals on the table is that home owners in default on their mortgages should be able to hand the property over to the bank and automatically cancel out the loan (even if the property had, in the meantime, gone down in value).
After the last economic crisis between 2008 and 2015 Portugal’s banks ended up with thousands of properties on their books resulting from mortgage defaults.

Source: Essential Business