The (long-awaited) regulation of the public guarantee for the purchase of a house by young people, which covers the first 15% of the capital, has already been published in the Diário da República and one of the novelties is that this is a mechanism that will be in force until December 2026.

According to the Ordinance, they can Young people between the ages of 18 and 35, with tax residence in Portugal and incomes up to the 8.IRS bracket. Applicants must not own another residential property and the value of the transaction must not exceed 450,000 euros.

As already know, the State guarantee will be 15% of the value of the transaction, thus allowing banks to finance the entire value of the property, safeguarding that this percentage will be "adjusted to a proportionally lower value in the event that the credit institution finances less than 100% of the value of the transaction", says the Ordinance.

The State's personal guarantee is provided through the Directorate-General for the Treasury and Finance (DGTF) to credit institutions which, by means of a specific protocol, can join within 30 days of the entry into force of the Ordinance, which happens tomorrow (the day after its publication).

However, the Ordinance clarifies that institutions that adhere to the measure have 60 days after joining to implement the procedures set out in the Protocol.

The Ordinance also establishes a maximum overall amount of the guarantee that will be distributed among the banks, as defined by the Minister of Finance, according to the proposals and entities that join the guarantee protocol. However, "the institutions adhering to the Protocol may request the DGTF to increase the amount of the portfolio guarantee granted to them, if they justifiably foresee the possibility of the amount initially granted being exhausted", reads the diploma.

"The distribution among the institutions adhering to the Protocol of the maximum amount of the guarantee to be granted by the State is determined by order of the member of the Government responsible for the area of Finance, taking into account the limit set under the terms of the previous paragraph."

This public guarantee will have a duration of 10 years from the conclusion of the credit agreement, extinguishing early if all the borrower's obligations are fulfilled before this deadline. "In the event that the borrower makes a partial early repayment of the loan, the state guarantee will be reduced proportionally," says the Ministerial Order.

This means that, in the event of default, as the type of guarantee is a surety bond, the State may be called upon to pay up to 15% of the outstanding capital, after which it is subrogated to the bank's rights to recover this amount from the borrower.

It is important to note that the measure, in addition to circumventing the Bank of Portugal's macro-prudential measure of a 90% limit on the loan-to-value ratio (LTV), which in the case of permanent home ownership should not exceed 90% of the acquisition or appraisal value (whichever is lower), the Ordinance does not change the other rules.

Thus, banks are still obliged to respect the limits of the debt service-to-income ratio (DSTI), which stipulates that all loan installments must not exceed 50% of the borrower's net income, with some exceptions allowed.

As for the maturity of the loans, the Ordinance also doesn't change the Bank of Portugal's recommendations. Thus, the maximum term remains 40 years for borrowers up to the age of 30, and 37 years for the 30-35 age group.

The measure will be available for contracts concluded until December 31, 2026, and may be extended after its impact has been assessed, with the Bank of Portugal and the Portuguese Banking Association having been consulted to draw up the public guarantee procedures, the document states.

Want to know more about Ordinance no.º 236-A/2024/1 
you can consult it here: https://diariodarepublica.pt/dr/detalhe/portaria/236-a-2024-889277003

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ECOSapo at https://eco.sapo.pt/2024/09/27/jovens-ja-podem-recorrer-a-garantia-publica-para-comprar-casa/ 


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