Ordinance 236-A/2024/1 was published on 27th of September and came into force the following day. It regulates the public guarantee for mortgage loans, aimed at young people between the ages of 18 and 35 buying their first home.
With this measure, at most, the Portuguese State guarantees, as guarantor, up to 15% of the value of the transaction, provided that the credit institution finances the entire value of the transaction or a lower amount as long as it is equal to or greater than 85% of the value of the transaction. This means that if a young person wants to buy a property worth 300.000 euros, the maximum amount guaranteed by the state will be 45.000 euros.
However, it should be remembered that the transaction value cannot exceed 450.000 euros, and young people cannot own another property for residential purposes, have an income higher than the 8th IRS bracket or use the state guarantee more than once
Currently, as a rule, banks will finance up to 90% of the purchase price or valuation (whichever is lower), meaning that normally, for a property worth 300.000 euros, banks can finance up to 270.000 euros. In these cases, the State will only be called upon to guarantee 30.000 euros.
If they fulfil all the conditions, young people can finance the full value of the property, with the State acting as guarantor for the amount that the banks cannot finance.
The maximum amount of funding will always take into account both the valuation of the property and the financial capacity of the young people. The State does not finance any amount; it only guarantees that if the young people have the financial capacity, the operation will be financed up to 100%.
This guarantee lasts for 10 years from the date the credit agreement is signed, and is extinguished early if all the borrower’s obligations are fulfilled before that time.
As the guarantor is the type of guarantee, in the event of default, the State may be called upon to pay up to 15% of the outstanding capital, and is then subrogated to the bank’s rights to recover this amount from the borrower.
The State’s personal guarantee, as guarantor, is provided through the Directorate-General for Treasury and Finance to credit institutions by means of a specific protocol.
Banking institutions now have 30 days to adhere to the protocol and then a further 60 days to implement the necessary internal procedures to be able to finance these operations. In other words, in practice, even if they have immediately signed up to the protocol, it will only be possible to buy a house with these credit conditions from January 2025.
The measure will apply to contracts signed until 31st of December 2026, and may be extended after its impact has been assessed
