Economics in a picture
Mortgage with a loan-to-value ratio less or equal than 90% has increased following the introduction of the macroprudential recommendation
Banco de Portugal has implemented a macroprudential recommendation, applicable to credit agreements concluded from 1 July 2018 onwards. According to the recommendation, the ratio between the loan amount and the minimum between the appraisal value and the purchase price of the house pledged as collateral (LTV – loan-to-value) must be less than or equal to 90% in the case of loans for the purchase or construction of own and permanent residence.
After the recommendation came into effect, the average LTV decreased and the percentage of loans with an LTV less than or equal to 90% increased from approximately 71% in July 2018 to 94% in December 2019. Households affected by the recommendation adjusted to the introduction of the limit to the LTV ratio by taking out smaller mortgage loans in relation to their income and by buying cheaper houses.
For more details, see “The impact of a macroprudential borrower-based measure on households’ leverage and housing decisions”, Banco de Portugal WP 202116.
For more details on the macroprudential recommendation, see https://www.bportugal.pt/en/page/ltv-dsti-and-maturity-limits.
Prepared by Daniel Abreu, Sónia Félix, Vítor Oliveira and Fátima Silva. The analyses, opinions and findings expressed above represent the views of the authors and not necessarily those of Banco de Portugal or the Eurosystem.
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