Households settle home loan record value

Throughout 2018, Portuguese households repaid in advance the entire mortgage loan in an amount of more than 4.2 billion euros. This is the highest since Banco de Portugal (BoP) collects this data. The first wave refers to information between October 2009 and September 2010.

According to the Retail Banking Market Monitoring report, there was an increase of 8.3% in the amount repaid compared to 2017. Data show that the capacity of Portuguese households also increased. The average repayment amount was 57 thousand euros when, in the previous year, it had been set at 53,5 thousand euros, which represents a growth of 6.5%. In this case, the average value had never been so high either.

The early repayment - in whole or in part - of mortgage loans has been behaving in recent years in line with changes in the economic cycle and household disposable income. "These developments [minus early repayments] are in line with the reduction in disposable household income in the period," wrote the BoP in the 2012 and 2013 reports, adding that the difficulties of switching banks also explained this behavior.

Real estate market moving

After a figure that surpassed 3.5 billion in 2010, total early amortization declined to the lowest in 2013, still at the peak of the financial crisis.

The increased financial capacity to repay home loans also accompanies the country's economic recovery. From 2014 the amounts rise again, reaching last year the highest value of the series.

In the 2015 report, the BoP risked an explanation for the Portuguese behavior change. "[Repayment] on home loans may be associated with the buoyancy of the real estate market, as home exchange often involves the full repayment of existing home loans and another contract to finance new housing," reads from the supervisor's document.

Also, the average amount of the total early repayment of mortgage loans reached, last year, the highest amount since data, exceeding 57 thousand euros.

This behavior of Portuguese households may seem contradictory in view of the cost of the loan, measured by the average interest rate charged.

Low interest rates are for keeping

The justification for this early amortization may in fact lie in the "dynamism of the real estate market" from 2015 onwards, as Banco de Portugal put forward in that year's report.

And interest rates are likely to remain low in the near future. That is at least the indication that comes from the successive speeches of the President of the European Central Bank that this week did not change the reference rate values ​​for the euro zone. In a statement issued after the Governing Council meeting in Frankfurt on Thursday, the ECB indicated that rates are expected to remain until the end of the first half of next year at current or "lower" levels, opening its doors. to future cuts.

Source: Paulo Ribeiro Pinto, Newspaper, 29 July 2019