What’s in Store for Mortgages in Portugal in 2025?

With more foreign buyers snapping up property in Portugal than ever before and the property market continuing to move from strength to strength – with estimated sales reaching 30,000 to 31,000 million euros and around 168 properties sold – 2024 was certainly a very successful year in the world of Portuguese real estate.

When it comes to housing credit in Portugal, 2024 was marked by exemptions from IMT for young people, relief for home payments, and loan repayments.

But digging deeper, what does this mean in practice? And, more importantly, what’s in store for 2025?

Mortgages in Portugal: Looking Ahead to 2025

2024 brought a breath of fresh dynamism to Portugal’s housing loan market, with more families seeking out mortgages to purchase homes in Portugal. This trend was fuelled by the steady decline in Euribor rates throughout 2024 that prompted banks to offer more attractive financing solutions to buyers, particularly mixed-rate loans.

In 2025, it’s expected that we see continued growth when it comes demand for mortgages in Portugal, as Euribor approaches 2 percent and more young people under the age of 35 take advantage of exemptions to Property Transfer Tax (IMT) and tap into government-backed guarantees.

Euribor Rates Decline to 2.5 Percent

From high interest rates in 2022 and 2023, Euribor rates began a downward trajectory in the tail end of 2023, which continued into 2024. By November of 2024, the 12-month Euribor rate was at a low of 2.5 percent, its lowest in two years.

This coincided with interest cuts by the European Central Bank (ECB), with the ECBs aim being to stimulate the European economy and maintain inflation to around 2 percent.

In the future, uncertainties in Europe and on a global scale – for example, the new administration in the USA – could impact the pace of rate reductions in the future, with the ECB adopting a cautious approach to reducing interest rates.

Increased Demand for Mortgages in Portugal

Demand for mortgages in Portugal increased significantly in 2024, with a record-breaking €1,676 billion in new mortgage contracts drawn up by October 2024, according to the Bank of Portugal.

The total value of outstanding mortgages also rose to €101.3 billion, the highest this figure has been since the beginning of 2015.

Factors that have driven this growth in 2024 include:

• Lower interest rates: Average rates on new loans dropped to as low as 3.4 percent in November, boosting demand for mixed and variable rate mortgages.
• Tax benefits for young buyers: Young adults (under 35s) benefitted from IMT and stamp duty exemptions. This measure by the Portuguese government is already being seen to be working, reflected in the increase in new mortgage contracts by young people.
• Decreased mortgage payments: Lower rates led to reduced monthly payments, making taking out a housing loan more affordable.
• Attractive mortgage options from banks: Banks in Portugal introduced competitive spreads and affordable mixed-rate options.
• Higher loan amounts: Lower interest rates helped families to borrow larger amounts, with the average loan reaching €139,868 by November.

What to Expect for Euribor and Mortgages in 2025

In 2025, there are several developments that look set to unfold during the year.

• Euribor may drop to 2 percent: Euribor rates are expected to continue to decline, potentially reaching 2.1 percent in the coming months as the ECB eases monetary policy. The Bank of Portugal has projected that rates will stabilize at around 2 percent by late 2025. This should lead to further reductions in mortgage payments and put pressure on banks to review their offers.
• Continued support for young buyers: Young people in Portugal may gain access to public loan guarantees, which would allow 100 percent financing. 18 banks have already prepared to offer these guarantees in 2025.
• Protection from future interest shocks: The Bank of Portugal may revisit its stress test formula, increasing it from the current rate of 1.5 percent to shield families from potential future interest rate shocks.
• Commission-free mortgage repayment to continue: The fee exemption for early repayments on variable-rate home loans will continue in 2025.
• No changes to interest deductions in IRS: Proposals to extend interest deductions for home loans in IRS to all borrowers were rejected. Only homeowners who purchased the property before 31 December 2011 can continue deducting 15 percent of interest, with a cap at €296.
• Improving transparency for credit intermediary practices: The Bank of Portugal is set to introduce measures to improve transparency and provide clarity for credit intermediary practices. This is to ensure that clients are safeguarded and are provided with fair guidance. Intermediaries are also open to review and improve their professional standards.
• Greater protection for defaulting loans: A European directive that is aimed at protecting loans is expected to be implemented to provide a clear legal framework when it comes to selling housing loans to third parties, such as investment funds. This is aimed to safeguard families who are at risk of losing their homes.

Future Looks Bright When It Comes to Securing Financing in Portugal

2025 looks highly likely to see some new records broken, given the continued demand for Portuguese real estate. And, when it comes to securing financing for your property, the outlook is positive.

Projections of further interest rate cuts and new support for young buyers, in addition to regulatory adjustments that are aimed at protecting families and continued support for young buyers, are each welcome, making 2025 an excellent year to continue buying property in Portugal should you be seeking for advantageous financing solutions.