Avaliação da solvabilidade

Before granting a loan, or increasing the total amount of a loan already contracted, the credit institution must assess the ability of bank customers to fulfil the obligations they intend to take on, i.e. it must assess their creditworthiness.

The duty to assess the creditworthiness is applicable in the granting of:

agreements of home loans and other loans guaranteed by mortgage or equivalent collateral, regulated by Decree-Law No. 74-A/2017, of 23 June;

consumer credit agreements, regulated by Decree-Law No. 133/2009, of 2 June, with the exception of credit overdrafts.

Credit institutions are not required to assess the creditworthiness of customers when the agreement in question is intended to prevent or settle arrears on credit agreements (for example, through consolidation or refinancing of agreements).

Elements taken into account in the assessment of creditworthiness

When assessing the creditworthiness of bank customers, institutions should take into consideration the following elements, inter alia:

Age;
Professional situation;
Regular income and expenses;
Information contained in databases on credit liability – such as, Banco de Portugal’s Central Credit Register;
Future circumstances that may have a negative impact on the customers’ ability to comply with the credit agreement.

Credit institutions should consider the impact on the bank customer’s ability to meet the obligations arising from the credit agreement of:

A possible reduction in their income level after retirement age or the end of the employment agreement, if the credit agreement is in force beyond that time;
A potential increase in expenses arising from the need to ensure the payment of other debts of which they are guarantor;
A possible increase in the amount of the instalment resulting from the increase in the interest rate on credit agreements with variable or mixed interest rates (credit agreements that provide for a fixed-rate period followed by a variable-rate period);
Changes in the amount of instalments payable under credit agreements in which the parties agree on grace periods for the payment of interest or principal or the deferral of payment of part of the capital to the end of the agreement.

How is the bank customer’s income determined for the purpose of assessing creditworthiness?

The assessment of creditworthiness should preferably be based on the income received by the bank customers on a regular basis (such as income earned as salary, remuneration for the provision of services or social benefits).

The credit institution must take into account the income earned for at least the three months prior to the time it assesses the creditworthiness and should not assume an increase in the future income of the bank customer.

In the case of loans of less than ten national minimum wages or a temporary increase (for a period of less than three months) of the total amount of the loan, institutions may use indirect methods to assess the creditworthiness of customers. In other words, in these cases institutions can assess the creditworthiness of bank customers based on an estimate of their income level, based on sufficient information to that effect.

How are the bank customer’s regular expenses determined for the purpose of assessing creditworthiness?

In assessing the creditworthiness of bank customers, the institution should consider a reasonable and prudent amount for their regular expenses, and should not assume a future reduction of these expenses.

When determining these expenses, the institution shall consider expenses of a personal and family nature as well as charges associated with the fulfilment of obligations arising from the credit agreement under consideration and the obligations assumed under other credit agreements.

In the case of loans of less than ten national minimum wages or a temporary increase (for a period of less than three months) of the total amount of the loan, institutions may use indirect methods to assess the creditworthiness of consumers. In other words, in these cases institutions can assess the creditworthiness of bank customers based on an estimate of their level of expenditure, based on sufficient information for that purpose and the information contained in databases of credit liabilities.

Customers must provide the information deemed necessary by the credit institution for the assessment of their creditworthiness as well as the documents required to prove the veracity and timeliness of this information.

For example, the institution may request the submission of documents proving the income earned by bank customers in the last three months, as well as information about their regular expenses.

If customers do not provide the information requested by the credit institution, fail to submit the documents or provide false or outdated information, the credit institution will not grant the loan or, if applicable, will not allow the loan amount to be increased.

Limits on lending

Credit agreements concluded from 1 July 2018 onwards must comply with limits related to the value of the property, the client effort rate, the maturity of the loans and the repayment modality, set by Banco de Portugal. The limits must all be observed simultaneously and correspond to caps and as such do not replace the assessment of each borrower's creditworthiness.

Ratio between the loan amount and the value of the property pledged as collateral (loan-to-value ratio)

The loan amount must not exceed a certain percentage of the value of the property on which the mortgage of the loan falls. The value of the property corresponds to the respective purchase price or the appraisal value, whichever is lower.

The amount of the credit agreement must therefore not exceed:

90% of the value of the property (i.e. 90% of the purchase price or the appraisal value, wichever is lower), for credit for own and permanent residence;
80% of the value of the property, for credit for purposes other than own and permanent residence;
100% of the value of the property, for credit for purchasing immovable property held by the credit institutions and for property financial leasing agreements.

Ratio between the monthly instalments of all the borrower's loans and his/her income (debt service-to-income ratio)

The total amount of the monthly installments of the borrower 's loans, including the installment of the loan he intends to purchase and the installments of other credits he/she supports, should not normally exceed half (50%) of his income, net of taxes and contributions to Social Security.

Maturity of the loans

Housing credit agreements and other mortgage-backed or equivalent loans should not, as a rule, have average maturity longer than 30 years.

Consumer credit agreements should not be longer than 10 years.

Repayment modality of the loans

New loans should not provide for grace periods or deferral of capital or interest. Loans should be granted with regular payments of interest and capital.

These limits do not apply where the contract is intended to prevent or settle arrears situations (for example, through consolidation or refinancing of contracts).

Consequences of the creditworthiness assessment

Institutions should only grant the loan – or, if applicable, increase the total loan amount – if the result of the creditworthiness assessment indicates that the bank customer is likely to comply with the obligations arising from the credit agreement.

If the loan or the increase in the total loan amount is refused on the basis of the creditworthiness assessment, the institution must inform the bank customer accordingly, without undue delay.

The institution is only obliged to inform the customer of the reasons for the refusal of the loan when this is motivated by the information that the institution consulted about the customer in the credit liability databases.

Even if the outcome of the creditworthiness assessment is positive, the credit institution is not obliged to grant the loan or increase the total loan amount.

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