Rising interest rates in Portugal: What does it mean for the real estate market?
In recent years, many of us have become accustomed to something unusual – negative or extremely low interest rates. This, among other things, made credit cheaper and encouraged investment and consumption. However, as many have already noticed, this scenario is changing.
It’s important to remember that low or negative interest rates are not the historical norm. They are a response to specific economic circumstances, such as the 2008 global financial crisis and, more recently, the COVID-19 pandemic. What we are experiencing, with an increase in interest rates, is a correction of this anomaly.
In this article, we will delve deeper into this topic, the recent rise in interest rates in Portugal, which has been much discussed recently, and which profoundly affects our economy and, of course, the real estate market.
What is the impact of rising interest rates on the real estate market?
First, it’s important to remember that low or negative interest rates are not the historical norm. They are a response to specific economic circumstances, such as the 2008 global financial crisis and, more recently, the COVID-19 pandemic. What we are experiencing, with an increase in interest rates, is a correction of this anomaly.
Interest rate increases can effectively make credit more expensive, and potentially slow down the rate of property appreciation, but it’s no reason to panic! It is important to remember that higher interest rates can also represent a protection against real estate bubbles and the high prices that are currently practiced, where everyone complains that they cannot access housing. We don’t remember, but in 1984 the interest rate rose to 30%, in the 90s to 11% and, after 2008, to 5%. What should we do, then, to adapt to this interest rate pattern?
1) Assess payment capacity: First of all, it is necessary to review your personal financial situation. Calculate how much you can pay monthly on a mortgage, taking into account the highest interest rates. Make sure purchasing a home is financially sustainable for you in the long term.
2) Reduce existing debt: If you have significant debt, consider reducing it before purchasing a home. This will help improve your ability to obtain a bank loan with favorable interest rates.
3) Save for a down payment: Saving for a substantial down payment can help reduce your loan amount and therefore your financial burden. Many experts recommend a down payment of 20% of the home’s price.
4) Consult a real estate agent: Working with an experienced real estate agent can be invaluable in a changing market. A consultant can help you find options that fit your budget and provide guidance on how to approach the purchase strategically.
5) Consult a credit intermediary: Buying a house is one of the most important steps in anyone’s life. It’s an exciting time, but it’s also complex and challenging. Being accompanied by a credit intermediary is essential because, like real estate agents, they are professionals specialized in mortgages and real estate financing. A credit intermediary has access to a wide range of financing options from different financial institutions, and can therefore save time and money. A credit intermediary knows how to deal with banks and can negotiate on your behalf, guaranteeing you the best possible conditions.
In short, the rise in interest rates is a return to economic normality, after a period of exception. As a real estate agent, I’m here to guide you through this transition, and help you make the best decisions for your needs and goals. Remember: the real estate market is resilient and always adapts to changing economic conditions.
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