The latest figures by the Bank of Portugal (Banco de Portugal) reveal the average interest rate on new mortgage lending rose by 0.04 percentage points in May, reaching 2.89 percent.

Regardless of the increase, Portugal retained its position as the country with the fourth-lowest mortgage interest rate among eurozone members.

Only Malta (2.02 percent), Bulgaria (2.43 percent) and Spain (2.85 percent) recorded lower average rates on new housing loans during the same period, while the euro area average stood at 3.45 percent.

Competitive market

The Bank of Portugal said the increase was largely driven by newly signed mortgage contracts, whose average rate climbed from 2.86 percent in April to 2.91 percent in May. By contrast, renegotiated mortgage agreements remained broadly stable, with an average rate of 2.83 percent.

These figures suggest Portugal continues to benefit from a highly competitive mortgage market.

As reported by ECO, the competitiveness between lenders and the widespread use of mixed-rate mortgages – which combine an initial fixed-rate period with a variable rate thereafter – have helped keep borrowing costs below those seen in much of the eurozone.

According to data published by the central bank, the average mixed-rate mortgage for new home purchases carried an interest rate of 2.77 percent in May, compared with 3.05 percent for variable-rate loans and 3.77 percent for fully fixed-rate mortgages. The mixed-rate products have become increasingly popular in Portugal over the years as households seek greater protection from fluctuations in the Euribor benchmark while maintaining relatively affordable monthly repayments.

Despite Portugal’s favourable position, mortgage rates have begun edging upwards across Europe amid renewed uncertainty in financial markets. As reported by ECO, expectations that the European Central Bank (ECB) could tighten monetary policy later this year have pushed Euribor rates higher, with persistent inflation – partly linked to higher energy prices amid tensions in the Middle East – continuing to influence markets.

Monetary policy

The ECB left its key interest rates unchanged at its July monetary policy meeting, opting to assess incoming economic data before deciding whether further action is required.

However, investors continue to anticipate the possibility of another rate increase if inflation remains above the central bank’s medium-term target of 2 percent.

Across the eurozone, the highest average mortgage interest rates were recorded in Latvia (4.26 percent), Estonia (4.12 percent) and Lithuania (3.96 percent), underscoring the significant differences in borrowing costs throughout the currency bloc.

While Portuguese homeowners are beginning to feel the effects of higher interest rates, the latest Bank of Portugal figures indicate that the country remains among the most affordable places in the eurozone to finance a home purchase, supported by strong banking competition and continued demand for mixed-rate mortgage products.