Macroprudential policy in Portugal: experience with borrower-based instruments

Abstract

A borrower-based macroprudential policy measure was recently adopted in Portugal targeting new loans for households, including both mortgage and consumer credit. The macroprudential measure recommends limits to LTV ratios, DSTI ratios and maturities of new loans, and the regular payments of interest and capital. The measure also encompasses interest rate and income shocks in its design. The purpose of this policy action is to ensure that credit institutions and financial companies do not take excessive risk when granting new household loans, promoting the resilience of the financial sector and the access of borrowers to sustainable lending. Taking into account the innovative and complex nature of the measure, this paper shares the portuguese experience in operationalising borrowerbased measures and discusses its appropriateness in light of the risks, the policy goals and the timing of the policy action.