In recent months, the economic outlook in Portugal has shown clear signs of recovery. According to recent data from the National Statistics Institute (INE), inflation has fallen, the cost of living has decreased and, consequently, families are managing to save more. This new reality raises an important question: is this the ideal time to apply for a mortgage?
With the drop in interest rates on mortgages, many potential buyers are considering moving forward with the purchase of a property, but there are several factors to take into account before making this decision. Let's explore the key variables that can influence your choice.
The Fall in Interest Rates on Mortgages
The main change in the financial market this year has been the fall in interest rates on new mortgages. According to the Bank of Portugal, the average rate on new home loans fell to 3.56% in July 2024, offering relief to those seeking financing. This decline is a direct response to the actions of the European Central Bank (ECB), which has been implementing cuts in its policy rates since the summer.
Families who opt for a mortgage now will benefit from lower installments, especially if they choose variable or mixed rate loans. Euribor, the most common index in Portugal, has also reflected this downward trend, with the 12-month Euribor standing at 3.16% and the 6-month at 3.42%.
Is it worth buying a house now?
Buying a property is one of the most important financial decisions a family can make. Even with the fall in interest rates, there are other factors to consider before moving forward. For example, house prices continue to rise in several regions of the country, especially in large cities such as Lisbon and Porto. Although interest rates are lower, the cost of acquiring a property is still high.
In addition, it is important to consider your family budget. The effort rate – which measures the percentage of income allocated to the payment of benefits – is a key indicator to take into account. Ideally, your monthly installments should not exceed 30% of the family's net income.
Another relevant point is financial stability. With the fall in inflation and the increase in savings, many families have greater margin to finance an initial down payment on home loans, which can significantly reduce the total amount of the loan and the respective installments.
Alternative: Putting Savings in Term Deposits
With the increase in the savings rate of Portuguese families – which reached 9.8% in the second quarter of 2024 – another question that arises is: is it worth investing these savings in the purchase of a house or letting them yield in a term deposit?
Currently, term deposits have offered relatively low yields, with the average rate on new term deposits in July 2024 set at 2.63%. Although it is a safe option, the returns are not as attractive as they could be in other investments. However, for those looking for stability and security, putting money in a term deposit can be an interesting alternative, especially for families who prefer to avoid the risk associated with the real estate market.
How to Choose the Best Mortgage?
If the decision to buy a house is on the table, it is essential to choose the mortgage that best suits your financial profile. Here are some tips for making the best decision:
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Simulation of Various Types of Rates: Compare variable, mixed and fixed interest rates. With the Euribor falling, the variable rate may be the best option in the short term, but mixed rates offer more stability in the first years of the contract.
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Effort Rate: Calculate how much of your budget will go toward credit repayment and make sure you can accommodate that amount comfortably.
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Borrowing Capacity: Check to see if you have any other loans or debts in progress. The lower your debt rate, the better conditions you can get on your mortgage.
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Trading with the Bank: Do not hesitate to negotiate the spread with the bank. A lower spread can make a big difference to your monthly payments.
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Initial Down Payment: If possible, make a larger down payment at the time of purchase. This can reduce the amount financed and, consequently, the total costs of the loan.
Conclusion: Buy or Save?
The decision between investing in a house or putting your savings in a term deposit will depend on your financial situation and your long-term goals. With interest rates falling and a diversified banking offer, this may be a good time to buy a property, especially if you can negotiate good credit conditions. However, for those who prefer a more cautious approach, term deposits remain a safe option, albeit with limited returns.
Whatever your decision, the important thing is to do a detailed analysis of the market and consult with financial experts before moving forward. Buying a home is a long-term commitment and should be taken with all caution.
Interested in learning more about how you can finance your home purchase in 2024? Get in touch with one of our experts and discover the best mortgage offers available!
