Portugal Tightens Mortgage Rules From August: Debt Cap Falls to 45%

What the Banco de Portugal's New Lending Rules Change

Banco de Portugal's new macroprudential recommendation takes effect on 1 August, replacing the framework in force since July 2018. Under the revised rules, directed at all credit institutions and financial companies with a head office or branch in Portugal, banks should only grant a loan if the borrower's debt-service-to-income ratio does not exceed 45% of net monthly income, down from the previous 50% ceiling. The test is run assuming interest rates are 1.5 percentage points higher.

The new guidance also changes maximum loan terms. Borrowers aged 35 or younger can still take out mortgages with maturities of up to 40 years, while those over 35 face a maximum of 35 years, replacing the previous three-tier system of 40, 37 and 35 years. On loan-to-value, Banco de Portugal continues to recommend that banks lend no more than 90% of the property value for the purchase, construction or renovation of a primary home, and no more than 80% for other purposes. The earlier allowance that permitted 100% lending when the property was owned by the bank itself has been dropped.

The rules apply to both housing credit and consumer credit. New personal loan contracts will generally be limited to seven years, extending to ten years when the loan is for education, health or the energy transition. Real-estate leasing contracts fall outside the recommendation's scope, while leasing of movable goods, such as cars, remains within it. The changes only apply where the borrower's solvency assessment takes place on or after 1 August; contracts assessed before that date remain under the 2018 rules.

The central bank has framed the move as preventive. Vice-Governor Clara Raposo said credit granting has grown over the past year and a half, house prices have accelerated and household incomes have risen, with a growing share of younger first-time buyers typically earning less. Banks are already bracing for an impact: BPI's chief executive expects the new rules to cut its credit production by more than 10%, Caixa Geral de Depósitos has estimated around 10%, and BCP's president has mentioned roughly 5%.

Why the Central Bank Stepped In - and How Banks Are Reacting

Why Banco de Portugal Sounded the Alarm Early

The recommendation is explicitly preventive. The supervisor says it wants to ensure financial stability and avoid excessive household indebtedness, pointing to risks it detected in the level and pace of mortgage lending and in the profile of borrowers. The bank's own description cites a rising share of younger first-time buyers, typically associated with lower income, and stronger reliance on credit to buy homes. By acting before delinquencies appear, Banco de Portugal is trying to stop a credit cycle from creating vulnerabilities that would surface when interest rates rise.

How the 45% Cap Changes a Borrower's Math

The headline cut from 50% to 45% understates the real shift. The test is run with an interest-rate shock of 1.5 percentage points and takes into account every loan the borrower holds, not just the mortgage. That reduces the maximum monthly payment a household can commit to, and in a stressed-rate scenario the room is smaller still. The BdP acknowledges the change may push some families to buy a slightly cheaper home. Exceptions exist, but the share of lending that can breach the 45% ratio is capped at 10% of the total credit granted in a semester, down from 15% under the old rules. BPI executive Francisco Matos notes that in 2025 only about 6% of credit actually used the exception, which suggests the practical effect may vary sharply by bank.

The Banks See Uneven Damage

BPI's chief executive, Joao Pedro Oliveira e Costa, said the impact on the bank's new lending will exceed 10%, compared with the 5% figure cited by BCP's president. CGD's Paulo Macedo has estimated around 10%. The different numbers reflect different customer mixes and underwriting approaches. Oliveira e Costa also pointed to a shift in product choice: fixed-rate loans have fallen to 6% of new lending from 15%, with variable and mixed-rate products growing as banks compete with promotional rates. He urged borrowers to look for greater predictability and to consider fixed-rate financing, arguing that the bigger structural issue is the shortage of housing supply rather than the availability of credit.

What Borrowers Should Do Before Applying From August

For households planning to borrow in Portugal, the practical consequence is less headroom in the affordability test. These are the points that matter most.

• Calculate your debt-service-to-income ratio at 45% using total net monthly income and all existing instalments, not just the new mortgage, and add an interest-rate shock of 1.5 percentage points to see whether a loan is viable.
• Check the term you are eligible for: borrowers aged 35 or younger can still stretch mortgages to 40 years, while those over 35 are limited to 35 years. Longer terms lower monthly payments, so age now matters more in the affordability calculation.
• If you plan to buy a primary home, expect a maximum loan-to-value of 90% (80% for other purposes) and do not count on the old 100% option for bank-owned properties, which has been removed.
• For personal credit, plan for a maximum term of seven years, or ten years if the loan is for education, health or energy-transition purposes.
• Weigh fixed versus variable carefully: BPI's CEO says fixed rates bring much greater medium-term stability to family budgets, even if they look more expensive in the short term; BPI's fixed-rate share of new lending has already fallen to 6% from 15%.
• Remember that exceptions above the 45% cap are now limited to 10% of each bank's lending per semester, so a lender will rarely be able to approve a stretched application.