Fixed or variable rate? no one. Mixed price gaining weight in the market – executive summary

In a period marked by high interest rates, marked by a strict monetary policy by the European Central Bank (ECB) to combat inflation in the eurozone, citizens are looking for new financing solutions to be able to buy a home, with the winning predominance of a mixed rate.

According to the quarterly report by Idealista / Creditohabitação in Portugal, housing loans contracted at a mixed rate, which combine a fixed interest rate for the first few years and a variable rate for the remaining period, showed “significant growth during 2022”.

This financing method reached 25% of all formally formulated mortgages in the second quarter of 2023, which is quite a jump considering that, a year ago, that number was less than half, at 12%.

Although variable rates and index Euribor are still the most contracted, they have lost weight in total credit, accounting for 61% in the second quarter of 2023, which is down from 72% recorded in the previous year.

The data shows that what has remained stable are the types of home loans most requested by families, with first home acquisitions continuing to represent the majority of contracted amount (54.5%) in Q2 2023 – despite financing. Non-residents granted 23.4% of cases, second home purchases 11.7% and transfers 7.8%.

In addition, there is still a predominance of granting housing loans for amounts less than 200 thousand euros, which represent 85.7% of the total, with only 9.1% of the contracts mediated by Idealista / Creditohabitação between 200 thousand and 300 thousand euros and 5.2 % only between 300 thousand and 400 thousand euros.

The report also highlights other changes inherent in interest rate increases. According to the data, it is now cheaper to buy homes, as the average home purchase price in the second quarter of 2023 was 208,661 euros, 15% lower than in the same period in 2022, when it amounted to 244,646 euros.

In addition, the contractual value of the housing loan declined, with the average value of official mortgage loans reaching 140,138 euros in the second half of this year, a figure 21% lower than that recorded in the previous year.

There was also an increase in the amount of credit entries in this period. Financing is down between 80% and 90% of a home’s value compared to the same period last year, and the lowest of the financing ranges has gained ground, which presupposes that families will come forward with more of a down payment to buy a home.

It should be noted that in April 2021, the Bank of Portugal adopted a macro-precautionary measure that sets new deadlines for granting loans according to age, with the aim of bringing the average maturities of new housing loan contracts closer to 30 years.