Selected Issues Papers

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

Author/Editor:

Laura Valderrama

Publication Date:

July 11, 2023

Electronic Access:

Free Download. Use the free Adobe Acrobat Reader to view this PDF file

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.

Series:

Selected Issues Paper No. 2023/046

Subject:

Cost of living Financial institutions Housing prices Income International organization Loans Monetary policy Mortgages National accounts Prices

Frequency:

Regular