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Euribor explodes, the consequences on loans in Portugal are tragic

The monthly payments of the real estate loans in Portugal will jump again not to say exploded on the contracts which will be revised next month, with increases ranging between 65 euros and 300 euros.

The rise in interest rates used to calculate housing payments continues unabated, with Euribor reaching 14-year highs due to the restrictive policy of the European Central Bank (ECB), which has again raised reference interest rate at the beginning of this month and is preparing to repeat the process in mid-March.

Euribor explodes, the consequences on loans in Portugal are tragic

For those who are repaying their home loan, and whose contract is at a variable rate, the tightening of the ECB translates into a strong compression of their budget, while families are already facing a drastic increase in the cost of living due to inflation. 

In Portugal, more than 90% of the 1.3 million contracts have a variable rate, and it is these that are exposed to Euribor variations. Due to the ECB's action, the monthly average of the 12-month Euribor was negative a year ago and is now above 3.5 %. The six-month Euribor, the most widely used in Portugal, has exceeded 3 %.

In response to soaring home payments, the government last year took steps to make it easier for families to renegotiate their loans with banks under the Default Risk Action Plan (DRAP). Major financial institutions report about 8,000 requests for contract restructuring, but warn that this number will rise as families begin to feel, more intensely, the impact of the acceleration in Euribor rates that took place mainly in the second half of last year.

The Euribor is calculated on the loans that the banks are made between them and then used as an indexing factor in financial contracts, such as loans to buy a house. They have accelerated sharply in recent months as the market has followed expectations of a sharp tightening by the ECB to control spiraling prices.

Since the summer, the ECB has already raised rates by 300 basis points, with the main rate rising from -0.5% to 2.5% in the space of seven months. The market is anticipating another hike at the meeting scheduled for March 16, with a 50 basis point increase.

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