The Bank of Portugal Tightens Home and Consumer Credit Rules from August, Capping Repayments at 45 Percent of Income

From 1 August, borrowing to buy a home or finance a big purchase in Portugal will come with tighter affordability checks. New macroprudential rules from the Banco de Portugal (Bank of Portugal), the country's central bank and financial supervisor, lower the maximum share of income a household can commit to loan repayments and rework the limits banks apply when they lend.

The headline change is the taxa de esforço, the debt-service-to-income ratio that measures how much of a borrower's net monthly income goes to servicing debt. The ceiling falls from 50 percent to 45 percent, and it applies to both crédito à habitação (home loans) and crédito ao consumo (consumer credit).

What is changing on 1 August

• Repayment cap: No more than 45 percent of net monthly income can go to loan repayments, down from 50 percent.
• Loan terms: Borrowers up to age 35 can now stretch a mortgage to 40 years, up from the previous 37-year limit; those over 35 remain capped at 35 years.
• Exception margin: The slice of new lending a bank may grant outside these limits is cut from 15 percent to 10 percent of the total each institution issues per half-year.
• Bank-owned homes: The special exemption that let institutions lend 100 percent of the value of properties they own is scrapped, bringing those sales under the general loan-to-value rules.

Crucially, the rules apply only to loans whose solvency assessment takes place from 1 August onward. Existing mortgages and credit agreements are untouched.

Why the central bank is acting now

Governor Álvaro Santos Pereira flagged the coming squeeze earlier in the year and, on 9 July, framed it carefully: "We are not facing an alarming scenario, but there are warning signs." The bank points to a gradual loosening of lending standards, noting that the effort ratio on new contracts has not fallen even as interest rates ease and incomes rise — a sign borrowers are stretching further just as conditions improve.

The move lands in a housing market already under strain, where rents keep hitting new highs and supply lags demand. It also complements the safety net most savers rely on without realising it — the subject of our recent guide on how the deposit guarantee fund protects bank savings up to €100,000.

What This Means for Residents and Expats

• Borrowing capacity: The lower 45 percent cap can shrink the maximum a household is allowed to borrow, so anyone house-hunting from August should recalculate their budget before making offers.
• Younger buyers: The new 40-year term for under-35s partly offsets the squeeze by lowering monthly payments, useful for newer arrivals entering the market.
• Timing: If your solvency assessment is completed before 1 August, the old limits still apply — a detail worth confirming with your bank if you are close to signing.
• Self-builders too: The changes touch construction finance, relevant to anyone weighing the build-your-own-home route.

The Bank of Portugal will review the framework periodically. For now, the message to borrowers is plain: from August, the maths on a new loan gets a little less generous, and a little more forgiving on the timeline.