If I transfer my credit, do the financing limits remain the same?
The Bank of Portugal (BoP) established in 2018 certain measures to limit bank financing in credit contracts. But do they also apply to transfers? Find out next.
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What are the current financing limits on loans?
Currently, there are funding limits set by banks for granted credits, due to the macroprudential measure of the Bank of Portugal (BdP).
This measure implies that, as of July 1, 2018, there are imposed financing limits: on the ratio between the amount of the mortgage loan with mortgage guarantee or equivalent and the value of the property that serves as collateral (LTV - Loan-to-value), and on the ratio between the monthly charges for the debt service associated with all the borrower's loans and their monthly net income after taxes and mandatory contributions to Social Security (DSTI).
The limits on financing, that is, the ratio between the loan amount and the value of the property used as collateral (LTV - Loan-to-value) are currently as follows:
- 90% for home loans for own and permanent housing;
- 80% for loans for purposes other than own and permanent housing;
- 100% for credits for the acquisition of properties owned by institutions and financial lease agreements.
The ratio between the amount of monthly installments calculated with all the borrower's loans and their net income (DSTI - Debt service-to-income) is 50%, with the following exceptions:
- 10% of the total amount of credits granted by each institution covered by this measure can be granted to borrowers with DSTI up to 60%;
- 5% of the total amount of credits granted by each institution covered by this measure may exceed the limits set for DSTI.
If I transfer my credit, do these financing limits remain?
According to the recommendation, the macroprudential measure applies to credit contracts - understood as "the contract by which an institution grants or promises to grant a consumer credit in the form of a loan, deferred payment, revolving credit or any other similar financing agreement. Like financial leasing, with the exceptions provided for in Article 1, namely those relating to credit contracts aimed at preventing or regularizing situations of default (namely through refinancing or consolidating other credit contracts, as well as changing the terms and conditions of existing credit contracts).
Since credit transfers are not included in these exceptions. Because when transferring credit to a new institution, a new contract is made between the borrower and that entity to which the credit is being transferred.
In other words, when celebrating a new contract, this institution must comply with a set of procedures, namely regarding the evaluation of the underlying risk of the operation, including the assessment of the client's solvency. Therefore, all institutions are required to comply with these procedures in all celebrations of new contracts, regardless of whether the contract results from a credit transfer or not, always subject to the criteria of the BdP recommendation.
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