New credit indicators in Portugal continue to SKCredit. Month after month a new report appears with data confirming this increase, which contrasts with the decrease of the savings. But is credit something that should scare us? In theory, no. But in practice we can not ignore the concern of these data that has been demonstrated by several entities.
Recommendations of DB Bank
Also this week, the BOP refers to 3 specific recommendations for mortgage credit: LTV, Effort Rate and Maturity of loans. To realize what is at stake, we must understand its meaning.
Limits to the relationship between loan and guarantee
Loan-to-value (LTV) is the collateral ratio presented against the loan amount. That is, if you have a property valued at 100,000 €, and if the LTV is 80%, it means that the bank grants credit up to 80,000 € (80% of the 100,000). What the DBD is recommending, in cases of permanent and private housing, is a maximum LTV of 90% .If it is, do not have any illusions about housing loans without having own capital to present.
Effort rate limits
As for the effort rate, the Bop recommends the maximum ceiling of 50% (with some exceptions). For the calculation of these 50% all borrowings of the borrower should be considered and, if the loan extends beyond 70 years, a reduction in the accounting of the yield should be considered. To calculate your effort rate you can use the RC Finance effort rate simulator.
Duration of loans
Finally, loan maturities should average 30 years, compared to the current average of 33 years. It does not mean that housing loans can not go up to 40 years, but there is a recommendation to lower the average of these maturities. It seems to me that the most relevant of these recommendations is the spirit behind them: the BOP identifies dangerous signs in lending and it has not been so long that the country has suffered the consequences for similar behavior.
How to lower the effort rate?
The solutions of consolidated credit and transfer of housing credit allow the reduction of its provision. Therefore, by keeping your income constant, you can reduce your effort rate to more reasonable values.