Portugal is one of the European countries with the most variable rate mortgage loans, the main proposal of banks for those who need a loan to buy a house that implies uncertainty for families in times of rising interest rates.
According to data from the European Central Bank (ECB), which compares several European Union countries, in May this year, 73.15% of new housing loans were made at variable rates.
With more variable rate loans in May, there were only Estonia (91.20%), Finland (98.10%), Latvia (90.42%) and Lithuania (96.48%).
In Spain, only 22.33% of housing loans were variable rate and in Belgium the proportion is even lower, only 7.62%.
The ECB does not have data for the total stock of mortgage loans. According to Banco de Portugal, 90% of the stock of mortgage loans in Portugal is fixed-rate.
Although studies based on the history of the last decades indicate that the variable rate has been more favorable in the long term, in the immediate term bank customers are subject to variations in interest and, therefore, in the monthly installment. This is a big problem for families with ‘just right’ budgets and has led to thousands of restructurings and renegotiations in recent months.
Earlier this year, as part of housing measures, the government forced banks to offer fixed-rate deals. Several banks then reacted by saying they already had such an offer and industry sources said it was many customers who had not taken precautions attracted by the negative Euribor.
Information gathered by Lusa indicates that the fixed-rate offer in Portugal has always been few and restricted. Banks offered little and it was generally medium-term, not covering the entire duration of the loan. It was also unattractive, with a large differential between the monthly variable rate installment and the monthly fixed rate installment.
Maria Alves bought a house in Lisbon in 2017. She went to several banks and, according to her account, was never offered a fixed rate. The loan has a spread of 1.2% (already revised because the initial one was higher) and is indexed to the six-month Euribor. The initial installment of 300 euros now costs more than 500. The interest subsidy approved by the Government was refused because he has not yet reached the effort rate established in the measure when, he says, he has managed to pay “with a lot of effort”. He fears that at the next review in October, he will no longer be able to pay with his salary and will have to resort to his few savings.
Joana Magalhães bought a house in 2021 when prices in Lisbon were already very high. She asked for 300,000 euros of credit to be able to buy a 100m2 apartment. There was only one bank that told her about a fixed rate, but the difference would be to pay 900 euros of installment with a variable rate or more than 1,300 euros with a fixed rate.
“It was much, much higher and therefore discouraging,” he says, adding that he read and researched and that everything said that, over the total duration of the loan, he would pay much more for the house to the bank if he opted for the fixed rate than for the variable one.
With the increase in interest rates, the installment increased so much that in March he had to negotiate a capital shortfall, now paying around €500 in interest alone. But you already know that at the next review, you will pay €1,250 in interest alone.
Asked what she will do when the grace period is over, she says the bank “will have to do something, otherwise it’s over”, either sell the house or hand it over to the bank because she cannot afford to pay an installment that she estimates will reach €2,000.
Joana has already tried to change her credit to another bank where she got better conditions, however, she could not do so because her effort rate was above 50%.
“The Bank of Portugal, by maintaining this rule in a period of crisis, prevents people from changing banks. Either people have older and lower loans or those who have newer and higher loans, like me, can’t do it. This again benefits the banks who do what they want because they know that people have difficulties in changing”, he considers.
Paulo Fontes, when he bought a house with his wife in 2018, ran several banks in the Porto area and “always suggested a variable rate”. “I asked about the fixed rate and they told us that it was not even worth thinking about it, as we would lose money,” he told Lusa.
For a loan of €140,000 over 30 years, they were left with an installment of €460. In 2022, seeing that the installment would go to amounts that they would not be able to pay, they passed the credit from the commercial bank to the Cofre de Previdência dos Funcionários e Agentes do Estado, with a fixed rate, and now have an installment of €500 for the entire duration of the loan.
“I spoke two weeks ago with my account manager who told me that if I hadn’t changed, I would be paying close to 900 euros,” he told Lusa.
In Belgium, it is very common for banks to offer a fixed rate and for the spread to be less than the variable rate, so many prefer it to avoid taking risks. Thus, rising interest rates are currently not directly a problem for those who pay their house to the bank. Workers in Belgium also benefit from the fact that wages must rise every year in line with inflation.
Bruno da Silva and his wife bought a house in Brussels in 2022, after the start of the war in Ukraine and when interest rates were already expected to rise, with a 25-year loan. For the first 20 years they pay a fixed rate of 1.3%. It is then revised for the following five years according to market rates, but cannot be higher than 2.6%.
“The solutions varied a lot from bank to bank, we opted for this one, but the conditions for a fixed rate for the entire contract were not much worse,” he tells Lusa, explaining that it was the favorable conditions that allowed them to buy a four-story house in the Belgian capital paying 1,400 euros, just above the 1,300 euros of rent they paid for the apartment. In Portugal, he says, he does not feel that regulators and “legislation protect people”.
Spanish Lourdes Vega and her husband bought a house in May 2020 in a town near Madrid. So they took out a fixed-rate loan of 1.74% for 20 years. “We could have done the fixed or variable rate, but we decided on fixed. With a rate below 2% it was not worth risking,” he told Lusa.
