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 once again raised the reference interest rate at the beginning of this month and is set to repeat the process in mid-March.

Euribor explodes, the consequences on loans in Portugal are tragic

For home loan borrowers with variable-rate contracts, the ECB's tightening means a sharp squeeze on their budgets, at a time when families are already facing a drastic rise in the cost of living due to inflation. 

In Portugal, over 90% of the 1.3 million contracts have a variable rate, and it is these that are exposed to variations in Euribor. 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 %. Six-month Euribor, the most widely used in Portugal, has exceeded 3 %.

Faced with soaring property payments, last year the government introduced measures to make it easier for families to renegotiate loans with banks under the Default Risk Action Plan (DRAP). The main financial institutions report around 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.

Euribor is calculated on the loans that the banks is 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 abrupt 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 a further hike at the meeting scheduled for March 16, with an increase of 50 basis points.