The risk profile of new home loan customers improved in 2023, with 61% of new loans being taken out by low-risk customers, the Bank of Portugal said today in its report on the monitoring of macroprudential recommendations.
According to the Bank of Portugal (BdP), “since 2018 there has been an improvement in the risk profile of borrowers taking out mortgage loans”. In 2023, there was a “clear increase” in mortgage loans granted to low-risk customers, rising to 61% (compared to 49% in 2022), in a year of rising interest rates and house prices.
New home loans include loan transfers between banks (2023 was an exceptional year for loan transfers), but the Bank of Portugal does not (at least for now) make any connection between risk reduction and loan transfers as it will need more time to see how this evolves. However, it warns in the report that, because of this, the profile of customers in 2023 “is not directly comparable with that of previous years”.
A low-risk client means that they have an effort rate of less than or equal to 50% of their income and a loan-to-value ratio of less than or equal to 80%.
Also in 2023, mortgage loans granted to high-risk customers (effort rate above 60% and loan-to-value ratio above 90%) accounted for 3% of the total (the same proportion since 2020) and to intermediate-risk customers 36% of the total (down from 48% in 2022).
The weighted average maturity of new mortgage loans was 30.6 years in December 2023, so – according to the Bank of Portugal – the banks are complying with the recommendation to converge the average maturity to 30 years. Even so, in the European Union (EU) Portugal has one of the highest maturities of new mortgage loans. In the EU countries for which information is available, the average maturity ranges from 20 to 27 years.
Home loans usually last for dozens of years, so when they issue a loan the banks assess the customer’s ability to continue paying if interest rates rise.
In 2023, given the increase in interest rates, the Bank of Portugal reduced the effort rate that banks have to simulate to facilitate access to this credit from 3% to 1.5%. It left other criteria of the 2018 macro-prudential measure unchanged, such as the limits on the duration of contracts or the proportion between the amount of credit and the value of the property given as collateral.
