Government approved moratorium on mortgages in Portugal: who is entitled and how does it work?

Parliament in Portugal - in parallel with an executive and temporary regime for late payment of rent and other measures - on Thursday 26th March 2020 approved an aid package including a moratorium on mortgage payments for vulnerable families and companies. This measure will alleviate the burden for those most affected by the negative economic effects of the coronavirus pandemic, and will be in force for six months, until 30th September this year. Let's have a look at what it is, how it works and who can access it.

What is a moratorium?

A moratorium is a mechanism that allows the delay in the payment of a debt, agreed between creditor and debtor, in the face of financial difficulties that inhibit the fulfilment of obligations by people or companies. This means that the instalments will no longer be paid for a certain period of time which, in this case, is six months.

Does this mean I'll stop paying my mortgage?

Does this mean that I'll stop paying? This measure means that the payment of monthly loan instalments is temporarily suspended, but it does not mean that the monthly instalments do not have to be paid. The amounts will have to be paid, within a period and subject to various conditions to be defined.

In practice, the households and businesses concerned will be exempt from paying off the outstanding principal and the interest on the loan for a period of six months until 30th September 2020.

Who does it apply to?

The moratorium applies to people who are in "particularly difficult" situations: the unemployed, those affected by lay-offs, people working in establishments that have closed due to the state of emergency or by order of the health authorities, people in preventative isolation or with an illness and those who are caring for children or grandchildren. "Everyone currently finds themselves in an economic situation that we weren't expecting and this needs special protection," explained the Minister for the Economy, Siza Vieira, in the presentation of these new measures at the end of the Parliament sitting.

This is a measure that applies only to cases of loans for permanent owner-occupied housing, i.e. for first homes.

How can this moratorium be activated?

The MP explained that families in economic difficulties due to the pandemic will have to submit a statement to the corresponding bank asking to be exempt for six months - this period of six months begins from the moment the client delivers said document.

"People in the situations I have just described who have a permanent home loan can apply to the banks with which they have these credits for a moratorium, and the banks apply these measures which take effect on the date the declaration is delivered," he said.

Banks already said they would accept moratoria. Is this the same?

Yes. Throughout the past days and weeks, several banks have anticipated the government measures by already announcing moratoria, namely Caixa Geral de Depósitos, Santander, BPI, Crédito Agrícola and, recently, Bankinter. This decision does not change anything, it just means that all banks are obliged to comply with this directive, until at least September.

Even so, the banks have already been willing to make available moratoria for consumer credit, and not only for housing - they have even accepted moratoria of up to 12 months in the case of loans to companies.

During the presentation of the measures, Siza Vieira did not fail to stress that "we have a few weeks ahead of us in which economic activity will be quite contracted" and that, therefore, "it is important that we give our businesses and our families the ability to get through these difficult weeks as much as possible so that in June we can take stock from a health and economic point of view and find the best way to relaunch our economy".

The Government estimates that the suspension of payment of bank instalments until 30th September, the main measure, will have an impact of 20 billion euros.