Housing credit: families are more indebted than a year ago

Today, the economic environment is more favorable for purchasing a home in Portugal through mortgage loans. Interest rates continue to decrease, and there are new incentives for young people to buy their first home, such as the IMT exemption and public guarantees. However, this does not mean that families will pay lower mortgage installments. In fact, what we are witnessing at the start of 2025 is that families are applying for higher mortgage loans, thus increasing the level of private debt for this purpose in the past year.

The reduction in interest rates over the last few months has stimulated the sale of homes in our country, as well as the contracting of mortgage loans. However, it has also created more room for families to become more indebted. Data from the latest quarterly report by Idealista/Créditohabitação reveals that households requested, on average, €193,676 per mortgage loan at the beginning of 2025, 34% more than at the start of 2024 (when interest rates began to show signs of decreasing after years of increase). From the same analysis, it can be concluded that the average percentage of financing sought was 86%, an increase of 3 percentage points (p.p.) in one year.

A similar scenario is visible in the actual home loans formalized: in the first quarter of 2025, families took out mortgages for the purchase of homes for 24% higher amounts (an average of €201,348) and also requested a larger share of financing from the banks (81% of the loan amount at the beginning of this year, 5 p.p. higher than the same period in 2024). In fact, the vast majority of loan contracts (about 59%) were negotiated at the highest levels of loans (80-90%), a percentage that increased by 1.9 p.p. during this period.

Mortgage Loans in Portugal: Requested and Contracted
Average values for the 1st quarter of 2025
Changes between Q1 2025 and the same period of 2024
Annual change in % of financing in percentage points

Table with 3 columns and 8 rows.

But why is this happening? On one hand, the decrease in Euribor rates over the past year – from about 3.8% in March 2024 to 2.4% in March 2025 – and the drop in mixed rates (from 0.53 p.p. to 2.93% in March, according to Bank of Portugal data) have helped lower loan costs. On the other hand, young people up to 35 years old can now benefit from IMT and Stamp Duty exemptions, as well as public guarantees that allow for 100% financing on mortgage loans (this guarantee accounted for 9.9% of the total contracts for purchasing homes at the start of 2025, according to the report). All of these factors have given families more financial room to request higher mortgage loans, thus increasing their effort rate for housing due to higher bank debt.

Another factor contributing to this trend in the Portuguese mortgage market is that families are looking for homes that are 13% more expensive than a year ago (with an average price of €204,249). And those who went ahead with deeds at the start of 2025 bought homes for 14% higher prices (an average of €266,549).

In the end, the drop in interest rates and the new incentives for young people have exacerbated the imbalance between demand and supply in the housing market, accelerating the pace of home price growth in Portugal to 6.3% in March, with the median cost standing at €2,775 per square meter, according to the Idealista price index. Meanwhile, household income growth has not kept up with this trend, falling by about 7% in the past year for applicants (to an average of €3,008) and rising only 8.7% for final buyers (to €4,029).

Home Prices in Portugal
Freepik
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Low-income families face higher effort rates
With these new incentives to buy a home, families with low incomes (under €2,000 per month) have shown greater interest in applying for mortgage loans, representing 46% of all requests that reached Idealista's credit intermediaries in Portugal at the beginning of 2025 – perhaps this is why the average income fell in the past year. "Lower-income families registered a relatively higher effort rate, about 38% [+10 p.p. from a year ago], while the global average is 31%," the report states.

However, only a small portion of these low-income families ended up contracting mortgage loans (they accounted for 15% of all deeds at the beginning of this year). And they did so with a higher effort rate (33%) compared to the previous year (29%) and the global average for that period (28%). Of course, the effort rate in these formalized contracts is much lower than the one calculated for loan requests in the same income bracket (the difference is 5 p.p.).

Effort Rates in Mortgage Loans
Data for Q1 2025
Effort rate in each income bracket

It is noteworthy that the majority of mortgage loans contracted at the beginning of this year were granted to households with incomes between €2,000 and €4,000 per month (41% of the total), with an average effort rate of 27%, which is even lower than the previous year (29%). The next largest group was households with incomes between €4,000 and €6,000, which accounted for almost a quarter of the contracts signed, with an average effort rate of 30% (+5 p.p.).

What also stands out is that, despite the overall increase in home prices, "the percentage of young buyers between 25 and 35 years old increased," which can be explained by the arrival of new incentives. As a result, the average age of both applicants and buyers decreased to 37 years in the first quarter of 2025, while it was 38 years a year earlier.

On the other hand, "mortgage loans with mixed rates continue to gain ground over those with variable rates, representing 83% of total contracts" (a year earlier, this percentage was 79%), the document explains. This trend can be explained by the fact that there is a wide range of mortgage loan offers with mixed rates at more affordable values compared to the Euribor added to the spread (which composes variable rates).