Portugal among European countries with the most floating mortgage interest rates

Portugal is one of the European countries with the most variable mortgage rates, the main offer of banks for those who need a loan to buy a house, which implies uncertainty for families in times of rising interest rates.

According to data from the European Central Bank (ECB), which compares different countries of the European Union, in May this year, 73.15% of new mortgage loans were issued at a floating rate.

Only Estonia (91.20%), Finland (98.10%), Latvia (90.42%) and Lithuania (96.48%) remained with more floating interest rates in May.

In Spain, only 22.33% of home loans were floating rate, while in Belgium the proportion is even lower, at just 7.62%.

The ECB has no data on the total “accumulation” of housing loans. According to the Bank of Portugal, 90% of the “stock” of housing loans in Portugal are issued at a floating rate.

Although studies based on the history of recent decades show that the variable rate was more favorable in the long run, bank customers are immediately exposed to changes in interest rates and, therefore, the monthly payment. Which in families with the “right” budget means a big problem and has led to thousands of restructurings and renegotiations in recent months.

Early in the year, as part of housing measures, the government forced banks to make flat-rate offers available. Several banks then reacted by saying they already had the offer, and industry sources said that many customers had not taken the precautions attracted by the negative Euribor values.

The information collected by Lusa indicates that the supply of fixed fares in Portugal has always been small and limited. Banks rarely offered it, and it was usually medium-term, not covering the entire term of the loan. It was still unattractive, with a big difference between the variable rate monthly premium and the fixed rate monthly premium.

Maria Alves bought a house in Lisbon in 2017. She went to several banks, and, according to her, she was never offered a fixed rate. The loan has a “spread” of 1.2% (already revised since the original one was higher) and is indexed to a six-month Euribor. The down payment of €300 is now worth more than €500. The government-approved interest subsidy was denied because he had not yet reached the effort quota set in the measure, when he said he managed to pay “with great difficulty”. He fears that in the next review, in October, he will no longer be able to pay off his salary and will have to resort to small savings.

Joana Magalhães bought the house in 2021 when prices in Lisbon were already very high. He asked for a loan of 300,000 euros to buy a 100 m2 apartment. There was only one bank that told you about the flat rate, but the difference would be to pay 900 euros in installments at a variable rate or more than 1300 euros at a fixed rate.

“It was much, much higher, and therefore discouraging,” he says, adding that he read and learned, and that everything said that over the life of the loan he would have paid the bank much more for the house if he had chosen a fixed rate rather than a variable one.

With the increase in interest rates, the contribution has increased so much that in March he had to negotiate a capital shortage, and now only interest is paid at about 500 euros. But you already know that on your next review, you will pay 1250 euros in interest only.

Asked what she will do when the grace period is over, she replies that the bank “will have to do something or it’s over”, either sell the house or hand it over to the bank because she cannot pay the fee, which she estimates will reach 2,000 euros.

Joana had already tried to transfer the loan to another bank, where she had better terms, but she could not do this, since the percentage of her efforts was above 50%.

“The Bank of Portugal, while maintaining this rule during the crisis, does not allow people to change banks. Either people have older and lower credits, or those with more recent and higher credits like me cannot. This again benefits banks, which do what they want, because they know that it is difficult for people to change banks, ”he said.

Paulo Fontes, when he bought the house with his wife in 2018, managed several banks in the Porto area and “they always offered a variable rate.” “I asked about the flat rate and we were told not to even think about it as we would lose money,” he told Luce.

For a 30-year loan of 140,000 euros, they were left with an installment of 460 euros. In 2022, seeing that the installments would go on amounts they could not repay, they transferred the commercial bank loan to the Fixed Rate Pension Fund for Employees and Government Agents, and now they have a €500 installment plan for the entire term of the loan.

“Two weeks ago I was talking to my account manager who told me that if I didn’t change, I would have paid around 900 euros,” he told Lusa.

In Belgium, banks very often offer a fixed rate and the difference in relation to the variable rate is not so big, so many people prefer it to avoid risk. Thus, at present, rising interest rates are not a direct problem for those who pay the bank for a house. Workers in Belgium also benefit from mandatory annual wage increases 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 expected to rise, on a 25-year loan. For the first 20 years, they pay a flat rate of 1.3%. Then it is revised for the next five years in accordance with market rates, but cannot exceed 2.6%.

“Decisions varied a lot from bank to bank, we chose this, but the flat-rate terms for the whole contract were not much worse,” he tells Lusa, explaining that it was the favorable terms that allowed them to buy a four-storey house in the Belgian capital for 1,400 euros, which is just over the 1,300 euros of rent they paid for the apartment. In Portugal, he says, he doesn’t feel like the regulators and “the laws protect the people.”

Spaniard Lourdes Vega and her husband bought a house in a city near Madrid in May 2020. So they took out a loan at a fixed rate of 1.74% for 20 years. “We could have used a fixed or variable rate, but we chose a fixed rate. At below 2%, it wasn’t worth the risk,” he told Lusa.