Bank of Portugal plans curb on youth home loan scheme

The Bank of Portugal is preparing to tighten mortgage lending rules to offset the government’s planned €750 million increase in a state guarantee scheme that lets young buyers finance homes with little or no upfront capital.

According to information gathered by ECO, the central bank is reviewing its macroprudential measures on mortgage lending, including limits on loan-to-value, debt service-to-income and maturities. One option under consideration is raising the “stress rate” premium used by banks when assessing variable-rate and mixed-rate home loans, which would reduce the amount households can borrow by making affordability tests stricter.

Since October 2023, that stress premium has been set at 1.5 percentage points above the contracted rate for loans with maturities of more than 10 years, down from 3 percentage points previously. The review comes as the public guarantee envelope is set to rise to €2.3 billion and has already supported more than 25,000 contracts for buyers aged up to 35, most of them with loan-to-value ratios close to 100%.

In a March monitoring report, the Bank of Portugal said the share of new housing loans granted to high-risk borrowers rose from 3% in 2024 to 21% in 2025, almost entirely because of loans backed by the public guarantee. In the same document, it said the share of new owner-occupied mortgage contracts with loan-to-value ratios above 90% rose from 0.1% in 2024 to 24% in 2025, while the average loan-to-value ratio for state-guaranteed loans stood at 99%.

The central bank’s board will take the final decision on the calibration of the measures, which are due to be presented in the coming weeks. Governor Álvaro Santos Pereira warned on Wednesday that Portuguese household deleveraging had reversed, with household debt rising from 54.9% of GDP in 2024 to 56.1% in 2025.

Originally published at Eco.pt