Benchmark interbank rates have been rising, and this is beginning to impact mortgage repayments at a time when there is a record number of such loans in Portugal.
Mortgage payment instalments in Portugal are rising, and the first increases could affect some families as early as April.
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The rise in Euribor — the rate European banks charge each other when lending — is a direct result of market turbulence sparked by the Middle East conflict. The increase is already feeding through into higher mortgage repayments, following the first US and Israeli strikes on Iran.
"Before the day of the conflict, we were in a phase where the Euribor was even falling slightly, but there was clearly a reversal after the war began," explains Nuno Rico, economist at DECO PROteste.
With the six and twelve-month Euribor above 2.5%, an increase of around €15 is expected in the instalments for loans that are reviewed in April.
"In the scenario of a €150,000 loan over 30 years, with a spread of 1%, we're talking about an increase of €15, in the case of the 6-month Euribor, the most used in contracts in Portugal," Rico told Euronews.
With regards to the 12-month Euribor, the second most used index, "we're talking about an increase of around €10 in the monthly instalment," the economist added, which constitutes a 20% rise compared to the pre-war price.
"In terms of daily values, we're talking about an increase, for example, of more than 20% in the case of the 12-month Euribor, just in terms of daily values," Rico explained.
Despite the increase, it should be noted that this is only the case for contracts that will be reviewed in April.
Mortgage contracts in Portugal are typically reviewed every three, six or twelve months depending on the specific Euribor index selected in the agreement.
At a time when everything is going up, from the supermarket trolley to petrol at the pump, another extra expense in the family budget can have a significant impact.
"So the time to act is now. Check if there's a possibility of moving to a mixed rate, with a fixation of up to 2 years, because there are values at the moment around the same as the current average Euribor, plus the best spreads, and if you do this, you'll at least have safeguarded your family budget from these turbulences in the near future," Rico noted.
Home loans hit a record high in Portugal
Although the ECB has kept thereference interest rate at 2%, the scenario could change, especially if the conflict continues.
"If the war continues throughout April, I would venture that it's almost inevitable that the ECB may already be forced to raise the key rate at the next meeting", Rico said.
This means yet another headache for families, especially those who have taken out mortgage loans more recently, also impacted by the increase in house prices and the consequent cost of buying a property.
"The new contracts have an issue here that is important to emphasise. On average, the level of indebtedness is much higher than the average of the contracts in force, because property prices are very high and families are being forced to take out high levels of credit to be able to buy property," explained the economist.
"Just to give you an idea, the most recent contracts are around 120% above the average for active contracts. In other words, the average amount requested is more than double what is owed," he added.
According to figures from the Bank of Portugal, housing loans reached €112.4bn at the end of February, reflecting a growth trend of 10.4% compared to the same month last year.
This is the same growth rate achieved during the month of January, extending the acceleration trend seen since January 2024 and constituting the highest annual growth rate since February 2006, according to the Bank of Portugal.
Housing loan applications have been boosted by the drop in interest rates over the last two years, but also by the public guarantee line launched by the government at the beginning of last year, boosting lending among young people.
However, given the value of the houses, the effort is also greater and so are the potential consequences of a possible rise in interest rates.
"This worries us because if there is a higher level of indebtedness, the greater the impact will be. When we talk about a loan over €200,000 and the interest rate rises by around 1%, we're talking about an increase of around €450 in the monthly instalment," Rico said.
Should we fear a rise in rates similar to 2022?
Despite the cautious scenario promoted by the ECB by not raising the key rates just yet, there are fears of further dizzying rises in mortgage instalments, in a scenario similar to the one experienced at the time of the war in Ukraine.
Álvaro Santos Pereira, the governor of the Bank of Portugal, said on Wednesday that there is "no point in speculating" about interest rates, guaranteeing that the current situation is better than the one experienced in 2022.
"We are clearly in a better situation than we were in 2022. In 2022, inflation in the European Union was already around 5% (...) At the moment, inflation is around 2%, so we're starting from a very different situation," Santos Pereira said in a statement publishing in, ECO, a Portuguese economic newspaper.
The key issue is the duration of the ongoing conflict.
Average instalment costs in Portugal worsened by 80% in 2022, and despite the current situation not being comparable to that, an extended war in Iran does increase those fears.
"As time goes by and especially with the impact this rise in energy prices will have on inflation, we could certainly end up in a situation similar to what happened with the war in Ukraine," he added.
"I must remind you that during 2022, we went from negative interest rates, which was also an unusual scenario, to an interest rate of around 4% in just over a year," Rico concluded.
