LISBON, Sept 21 (Reuters) - Portugal's government said on Thursday that banks must discount the benchmark six-month Euribor rate by 30% when calculating mortgage interest rates if asked to do so by borrowers struggling to deal with rising interest rates and avoid default. Around 90% of Portugal's stock of 1.4 million mortgages have variable rates indexed to euro interbank offered rates (Euribor) , one of the highest levels in the euro zone. But interbank rates have soared as the European Central Bank hiked interest rates from record lows.
"As a result of this measure, the implied interest rate on mortgages cannot exceed 70% of the six-month Euribor rate in the next two years," Finance Minister Fernando Medina told a news briefing. Those with mortgages indexed to three- and 12-month Euribor rates will also receive a discount equal to the nominal amount resulting from the cut in the six-month rate, he added.Banks will be able to start recovering unpaid interest from those that requested the reduction after four years by redistributing the payments until the mortgages mature. Medina said the new measure and the interest subsidy that the state already guarantees to the most indebted families should help around one million families. "The abrupt rise in mortgage payments is undoubtedly the most serious problem that Portuguese families face today, in addition to the impact of inflation, and we want to give them stability for two years," he said.
Bank of Portugal Governor Mario Centeno has recently estimated that at the end of 2023 the mortgage expenses of around 70,000 families could exceed 50% of their net income. Medina said the new measure, which helps banks to avoid non-performing loans (NPL), was agreed with the Association of Portuguese Banks APB and the central bank. Portuguese banks suffered a spike in bad loans after the economic and debt crisis in 2010-13, but have since reduced the share of NPLs to 3.1% of total credit from a peak of 17.9% in mid-2016.