19th July, 2012

Following the measures taken to settle relatively similar cases that arose in the last quarter of 2008 and to deal with private customers' difficulties in paying their monthly mortgage instalments after their household's income was seriously reduced due to unemployment, for example, the banks adopted a wide range of temporary solutions to handle these situations.

These solutions are based on the idea of debt restructuring, temporary suspension of payment of the principal and the best way to meet the interests of both people and banks.

It is important to remember that people can keep their homes. Note that the average mortgage interest rate in stock is currently very low, at 2.39%, and the average monthly instalment is 291 euros, which they would have to compare to a possible rent and the fact that interest rates on new mortgages are much higher. This means that if they were later able to buy a house or apartment again, they would have to pay a much higher instalment, thereby losing not only a large part of their savings invested in buying a home but also having the inconvenience of finding another residence and wasting a good opportunity. A solution involving transfer in lieu of payment should only be considered when there is really no other way out, as the financial issue is compounded by the social problem.

Temporary solutions, with due attention to the practices of several banks according to their own criteria, include a number of alternatives, such as:

  • a grace period on payment of the principal for a certain period (two to four years) or a very small amount in the repayment plan with the last instalment being a percentage of the principal owed 
  • extension of the principal repayment time to up to 50 years from the date of the mortgage agreement, though the oldest borrower's age may not exceed 75
  • reduction of the spread during the grace period 
  • consolidation of the mortgage loan with other liabilities that the borrower has at the bank 
  • if possible, exchange of the property for another of lower value thereby reducing the amount of the instalments 
  • acquisition by property rental investment funds (FIIAH) in which the bank purchases the property for one of the these funds, subject to legal provisions 
  • moratorium on part of the debt on terms similar to those set out in DL 103/2009 of 12 May, except with regard to the interest rate
  • transfer of the property in lieu of payment provided that certain, pre-agreed conditions are met

These measures are obviously subject to eligibility criteria covering a particular universe properly adapted to the financial institutions' reality, experience and practices when it comes to prevention and credit recovery and discouragement of over-borrowing.

These alternative solutions may be included in a code of good practices accepted voluntarily by each bank and will be the best way to respond to a social problem and a need, without jeopardising their autonomy in terms of contracts, in which they can alter freely accepted terms to some extent at their own discretion. This might have highly relevant effects on the economy, the public (especially the new generation and people who have invested their savings in buying properties) and the banks.

The important thing is the banks' commitment to finding effective solutions to a social problem.