For many people, this change means that the amount approved by the bank will be lower or that the credit may even be rejected. In this article, we explain what motivated this change, how it affects your accounts when applying for credit, and what strategies you can use to facilitate approval.

Why did the effort rate limit drop to 45%?

The effort rate measures the percentage of a family's monthly net income used to pay all credit installments. By reducing the limit to 45% (which may have slight exceptions in a very restricted volume of bank contracts), the Bank of Portugal has a main goal: to protect the economy of families.

With the increase in interest rates in recent years and the high level of indebtedness of the Portuguese, the risk of default has increased. Inflation and pressure on the cost of living have left many budgets squeezed. In addition, the recent public guarantee of support to young people in buying a house has generated the need to create an extra brake.

Thus, the Bank of Portugal wants to avoid at all costs banks granting loans that suffocate families and leave the country too exposed to new financial crises.

What can you actually buy with the new affordability rate?

Reducing the effort ratio from 50% to 45% changes the amount a bank can lend you. To understand the real impact, we did the math using current interest rates (an average of 3% between Euribor and spread) over a payment term of 40 years, assuming 90% financing.

Example 1: Young couple with no other credits

Net income of the couple: 2,000€
Maximum limit to pay credits (45%): 900€ per month.
What they can buy: If they have no other loans, these 900€ are entirely for the house installment. With current rates, the bank lends around 250,000€, allowing them to buy a house around 275,000€ (assuming the initial down payment).

Example 2: Young couple WITH a car loan

Couple's net income: €2,000
Maximum limit to pay credits (45%): 900€ per month.
Charges for the car: Already paying 300€ per month for car credit.
What they can buy: There are only 600€ per month left for mortgage credit. With this limit, the bank will only lend them 167.000€, limiting the choice to properties in the range of 185.000€ (assuming the initial payment). Because they bought a car, they lost 90.000€ in house purchasing power.

Example 3: Single person with no other credits

Net income: 1,200€
Maximum limit to pay credits (45%): 540€ per month.
What you can buy: With the monthly installment strictly capped at €540, the bank will lend a maximum of €150,000. This person will have to look for houses up to €167,000 (assuming the initial down payment).

With these new rules, it is evident that young people, single-parent families, and customers with active personal loans are being pushed out of the capability to approve the properties they initially intended.

The impact on the bank counter

When arriving at the bank to request financing, this change will result in several barriers:

Drastic reduction of the approved maximum amount.
Higher requirement for own capital (having to make a higher down payment to ask for less money from the bank).
Increase in the number of credit refusals due to debt-to-income ratio, even when presenting good guarantees.
Obligation to extend the payment deadline to the maximum limit allowed by age, in order to lower the installments.

Consolidate credits to recover approval margin.

As the examples above demonstrate, having other loans in progress destroys your leeway to buy a house.

This is where credit consolidation comes in as a salvation tool. By combining all personal loans and credit cards into a single contract, it is possible to reduce the total monthly payment by 30% to 60%.

If the couple from "Example 2" renegotiate or consolidate the car loan and lower the installment from 300€ to 150€, they immediately gain an extra 150€ monthly margin for the home loan, allowing them to buy a more expensive house. For many Portuguese people, clearing and consolidating previous debts will be the only way to make the deed viable.

The vital role of the credit intermediary

With stricter rules, mortgage approval has become a process that requires strategy. The role of the credit intermediary has gained vital importance today.

Finding the right bank is no longer just about comparing spreads. Now, it involves consultancy work where it is necessary to simulate scenarios, weigh the consolidation of old debts, choose the best interest rate option (fixed, mixed or variable), and design a financial profile that fully complies with the new requirements of the regulator.

Do you want to buy a house, but are afraid that the new effort rate will block approval or reduce the amount?

Do not proceed without doing the math. Talk to the credit intermediaries of Poupança no Minuto and find out, at no cost, what your real financing margin is and how you can prepare your profile for the bank to say "yes."

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