Household Vulnerabilities, Financial Stability, and the Role of Policies in Portugal

Since the pandemic, developments in the real estate market in Portugal suggest that housing vulnerabilities have increased.
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Volume/Issue: Volume 2023 Issue 046
Publication date: July 2023
ISBN: 9798400248016
$15.00
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Topics covered in this book

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Finance , Economics- Macroeconomics , Money and Monetary Policy , International - Economics , Housing Prices , Mortgage Market , Housing Affordability , Aggregate Consumption , Fiscal Support , Stress Testing , Financial Stability , household vulnerability , house price correction , vulnerability indicator , simulation result , housing vulnerability , Mortgages , Income , Loans , Cost of living , Europe

Summary

Since the pandemic, developments in the real estate market in Portugal suggest that housing vulnerabilities have increased. Rising living costs and interest rates are stretching household finances which could cause an increase in defaults or force households to cut back on consumption. Simulation results suggest that, under adverse conditions, almost half of all households could be financially stretched with a disproportionate effect on lower income households. In addition, one third of consumers may need to adjust spending although the estimated reduction in aggregate consumption is limited. The impact on the banking system is manageable but a sharp house price correction could have a material impact on capital buffers. Policy support aimed at tacking the cost of living crisis could help mitigate some of these risks.