The Bank of Portugal Tightens Mortgage Limits From Today, Cutting the Maximum Debt-Service Ratio to 45%
From 1 August, new Banco de Portugal rules cap the share of income a household can commit to loan repayments at 45%, tighten banks' room for exceptions, and simplify maximum loan terms by age.
A revised set of borrowing rules from the Banco de Portugal (Bank of Portugal) takes effect today, and anyone applying for a home loan from now on will meet a stricter test than borrowers did a week ago. The central bank's macroprudential recommendation, in force from 1 August, lowers the ceiling on how much of a household's income can be swallowed by loan repayments and narrows the discretion banks have to lend outside the limits.
The headline change concerns the taxa de esforço, the debt-service-to-income ratio (known by its English acronym, DSTI). Until yesterday, banks could lend to households committing up to 50% of their net monthly income to servicing all their credit; from today that ceiling falls to 45%. Crucially, the figure is measured under a stress scenario that assumes interest rates rise by 1.5 percentage points, so the real headroom is tighter than the number suggests. The cap applies to both mortgages and consumer credit.
The Bank of Portugal has also trimmed the escape valve that lets lenders exceed the limit in selected cases. The margin for exceptions drops from 15% to 10% of the credit each institution grants over a half-year, and banks must justify why a given loan breaches the threshold, citing other mitigating factors. The recommendation is not legally binding, but it operates on a comply-or-explain basis that most lenders follow closely.
Maximum loan terms have been simplified at the same time. Where three age brackets previously governed how long a mortgage could run, there are now two: borrowers aged up to 35 can take a loan of up to 40 years, while those over 35 are capped at 35 years. The longer term for younger buyers is designed to keep monthly instalments within reach even as the income test tightens.
None of this touches existing borrowers. The new rules apply only to contracts whose solvency assessment takes place from today onward; loans already running continue under the framework set in 2018. For anyone in the middle of a purchase, the relevant date is when the bank formally assesses the application, not when the property was chosen.
The practical effect is that some buyers will qualify for a smaller loan than they would have last month, particularly households already stretching their budgets. BPI has estimated that the combined changes could shave around 10% off new mortgage lending. The Bank of Portugal's own vice-governor has acknowledged the rules may nudge some families toward a slightly cheaper property rather than pricing them out altogether.
The tightening lands in an already testing month for mortgage holders, with the Euribor's July rebound feeding through to higher variable-rate bills. For prospective buyers, the message is straightforward: the amount a bank is willing to lend against a given salary has just shrunk, and it is worth re-running the numbers before signing anything. Borrowers unsure how the new stress test affects their case should ask their lender to model the repayment under the assumed 1.5-point rate rise, which is the figure that now decides whether a loan clears the 45% line.
