New mortgage rules to limit home purchasing power
The BdP has reduced the maximum debt-to-income ratio (DSTI) for home loans from 50% to 45% to curb high-risk lending. Industry analysts estimate this change could lead to the rejection of 10% to 15% of mortgage applications that would have previously been approved. The government has introduced a public guarantee (Garantia Pública) to help mitigate these impacts for younger buyers.
The debt service-to-income ratio (rácio de serviço da dívida sobre o rendimento or DSTI) is a measure used by lenders to determine the percentage of a borrower's monthly income required to cover all debt payments. The Bank of Portugal (Banco de Portugal) sets limits on this ratio to ensure borrowers can afford their mortgage payments if interest rates rise.
