Article

Credit agreements for the purchase or construction of permanent residential immovable property - New measures to mitigate the effects of the reference rates increase on credit agreements for the purchase or construction of permanent residential immovable property

Decree-Law no. 80-A/2022 of November 25 was published, with the aim of establishing measures to mitigate the effects of the reference rates increase on credit agreements for the purchase or construction of permanent residential immovable property.

Decree-Law no. 80-A/2022 applies to credit agreements for the purchase or construction of permanent residential immovable property covered by Decree-Law no. 74-A/2017, of 23 June, as amended, entered with credit institutions, financial companies and branches of credit institutions and financial institutions operating in Portugal ("Institutions"), with an outstanding amount equal to or less than (euro) 300,000.

Having into account that variable-rate credit contracts are the main type of mortgage credit in Portugal, the law aims to strengthen the institutions' preventive mechanisms for the current situation of rising interest rates to anticipate any risk or default situation that may arise from the rise in the debt service rate, obliging the institutions to implement a specific routine for evaluating this effect.

Following the publication of the Decree-Law 80-A/2022, the Institutions now have the duty to monitor the evolution of the customer's effort rate and must check the existence of signs of a significant increase in the effort rate or the verification of a significant effort rate at least 60 days before the next interest rate reset.

Decree-Law no. 80-A/2022 sets out the situations in which a significant worsening of the debt burden ratio or a significant debt service ratio is considered to exist for the purposes of applying the law.

Thus, when the Institutions detect a significant worsening in the borrowers' debt service ratio or a significant debt service ratio in credit agreements for the purchase or construction of permanent residential immovable property as a result of the variation in the reference rate, or when the borrower provides them with facts that indicate a deterioration in their financial capacity, the Institutions apply, with the necessary adaptations, the regime set out in Decree-Law no. 227/2012, of October 25, in its current wording, carrying out an assessment of the effect on the borrowers' financial standing with a view to determine the existence and extent of the risk of default and, subject to verification of the other conditions defined in the above mentioned Decree-Law, the presentation of proposals that are appropriate to the borrower's situation, which may include, for example, an extension to the repayment period of the credit agreement, with the possibility of resuming the contractual period prior to this extension. The law also provides that no commissions may be charged for renegotiation of contracts, nor may the interest rate be increased, and determines the temporary suspension of the enforceability of the early repayment commission for variable-rate housing credit contracts until December 31, 2023.

Decree-Law 80-A/2022 comes into force on 26 November 2022 and will remain in force until 31 December 2023.

To access to the entire wording of Decree-Law 80-A/2022, of 25 November: Decreto-Lei n.º 80-A/2022 | DRE

For more information on this subject, please contact:
Miguel Cordeiro

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