The Bank of Portugal (BdP) has highlighted a sustained improvement in risk profile evolution, even excluding the impact of credit transfers since macroprudential recommendations were implemented in housing credit contracting in 2018.
“Excluding transfers, we see an increase in the proportion of new operations classified as low risk over the last two years, accompanied by a reduction in the intermediate risk category,” stated the banking regulator in a report analyzing macroprudential measures.
The document reviews the measures introduced by the BdP, “including recommendations directed at new credit contracts with consumers and capital macroprudential measures”.
According to the central bank, these measures aim to preserve financial stability, strengthen the financial system’s resilience, and mitigate the accumulation of risks and vulnerabilities.
The BdP notes that the recommendation is being “broadly followed”.
This recommendation focuses on three factors: the loan-to-value ratio (LTV) between the total credit amount for a property and the lesser of the appraised value or purchase price, the debt service-to-income ratio (DSTI) between the total monthly loan payments and the borrower’s net monthly income, and the maximum contract maturity.
In new housing credit operations, the percentage of high-risk profiles stood at 3%, remaining unchanged from 2023, while those with intermediate risk profiles increased by three percentage points to 39%.
High-risk clients are characterized by an effort rate exceeding 60% and an LTV ratio above 90%, while low-risk clients have an effort rate of 50% or less and an LTV ratio of 80% or less.
The annual percentage variation was the same for new contracts, excluding credit transfers, at 3% high risk, 43% intermediate risk, and 53% low risk.
In 2024, the average weighted LTV ratio remained unchanged at 69% compared to 2023, while 92% of new housing and consumer credit contracts were awarded to borrowers with an effort rate of 50% or less – a slight increase from 91% the previous year.
The average effective effort rate decreased from 26.4% in 2023 to 26.2% in 2024, “remaining above the level recorded in the third quarter of 2018 (23.2%)”.
The weighted maturity of new credit operations was 31 years in December 2024, 2.4 years shorter than the value in July 2018.
“After reaching a peak of 33.7 years in January 2021, the average weighted maturity followed a descending trajectory until the third quarter of 2023, approaching the quarterly recommendation of 30 years, albeit slightly above this value,” records the BdP.
Last year, the BdP observed “some fluctuation” in this area, notably in the second half, “with the lowest value recorded in July 2024 (29.7 years), followed by an increase in the average maturity”.
July was the month preceding the implementation of certain measures by Luís Montenegro’s government aimed at housing, notably the introduction of exemptions from the Property Transfer Tax and Stamp Duty for home purchases by young people up to 35 years old.
Between 2020 and 2024, the percentage of new housing credit operations with a maturity of 30 years or less increased from 35% to approximately 44%.
In the second half of 2024, 27% of new credits were near the LTV ratio limit, 6% near the effort rate limit, and 2% at the limit of both, compared to 23%, 8%, and 2%, respectively, during the period between the second half of 2022 and the first half of 2024.
With regard to capital macroprudential measures aimed at strengthening the financial system’s capacity to absorb unexpected losses, the combined buffer requirement (CBR) amounted to an aggregate of 6.2 billion euros.
The conservation buffer (CCoB) accounted for 74% of this indicator.
