Bank of Portugal Lowers the Maximum Household Debt-Service Ratio to 45% and Trims Banks' Room for Exceptions From August 1
The Bank of Portugal's new Macroprudential Recommendation cuts the maximum debt-service-to-income ratio (taxa de esforço) from 50% to 45% for mortgage and consumer credit, and trims banks' exception margin from 15% to 10%. It applies to loans assessed from 1 August and may later become binding law.
Buying a home or taking out a personal loan in Portugal is about to require tighter arithmetic. The Banco de Portugal (Bank of Portugal) has approved a new Macroprudential Recommendation that lowers the maximum share of income a household can spend servicing its debts, and narrows the room banks have to lend outside the rules. The measure replaces the framework in place since 2018 and applies to any loan whose creditworthiness assessment takes place from 1 August.
The headline change is to the debt-service-to-income ratio — known in Portugal as the taxa de esforço and, in the regulator's own shorthand, the DSTI. The ceiling drops from 50% to 45% of a borrower's net monthly income, and it covers not just mortgages but consumer credit too, because the calculation sums every loan a borrower already holds.
What actually changes on 1 August
- A lower debt ceiling: households will be able to commit at most 45% of net income to loan repayments, down from 50%.
- Less flexibility for banks: the slice of new lending a bank may grant above the general limit falls from 15% to 10% of the credit it issues each half-year.
- One combined test: because the DSTI adds together mortgage and consumer debt, a car loan or a credit card can now eat into how much house a buyer qualifies for.
The Bank of Portugal frames the tightening as a response to an overheating market. In its statement, the supervisor points to "an acceleration in the growth of credit to households" — both in outstanding stock and in new mortgage and consumer contracts — alongside a rising average loan size that, it says, signals higher borrower indebtedness. It also flags intense competition between lenders and a growing share of younger first-time buyers, who typically earn less and borrow more heavily to get onto the ladder.
The regulator warns that the lower DSTI will bite hardest where borrowers already carry other debts, since the ratio "sums all the credits held by the borrower" rather than looking at a mortgage in isolation.
Recommendation now, law later
For the moment these remain recommendations rather than binding rules, applied on a "comply or explain" basis. But the governor of the Bank of Portugal, Álvaro Santos Pereira, has signalled that the institution is prepared to give the limits the force of law — a move that would remove the discretion banks currently retain at the margins.
The timing lands squarely on a housing market that has run hot all year. Portugal recorded the sharpest house-price growth in the European Union in the first quarter, at 17.8%, and the state has been busy on the demand side too, from a reduced 6% construction VAT to incentives for younger buyers.
For foreign residents weighing a purchase, the practical takeaway is simple: from August, the bank's affordability calculation becomes stricter, existing debts count against you more directly, and the cushion that lets lenders bend the rules for a favoured client is thinner. Anyone close to submitting a mortgage application before the deadline may find the old 50% ceiling still applies — but only if the solvency check is completed in time.
