Portugal Keeps 4% Mortgage Buffer to Shield Homebuyers and Borrowers

Mortgage holders, house-hunters and bank shareholders woke up to a familiar piece of news: Banco de Portugal sees no reason to loosen the safety harness it fastened around the country’s lenders last year. The regulator has just confirmed that the 4 % systemic-risk buffer applied to residential property loans will remain untouched, keeping an extra layer of capital parked inside the balance sheets of the five largest banks that use internal risk models. In plain terms, the financial system retains a ready-made shield should Portugal’s red-hot housing market suddenly cool.

A pre-emptive shield stays in place

When the measure debuted in October 2024, supervisors described it as an insurance policy against a property crash. Twelve months on, the watchdog’s review found "no material change" in the landscape. That verdict means BCP, Santander Totta, BPI, Novobanco and Bankinter’s Portuguese branch must continue to hold Common Equity Tier 1 capital amounting to 4 % of their risk-weighted mortgage exposures. The buffer is what policymakers call a almofada financeira – a cushion that can be released in a downturn to keep credit flowing. For now it stays firmly in place, after consultation with the European Central Bank, which raised no objections.

Why the 4 % cushion matters for homeowners and borrowers

By targeting the handful of lenders that deploy sophisticated Internal Ratings-Based (IRB) models, the supervisor is tackling an asymmetry: those banks typically assign lower risk weights to mortgages than rivals using the standard method, freeing up capital in good times. The extra 4 % requirement evens the field, ensuring that a sudden fall in house prices does not force an abrupt credit squeeze. In practice, households with existing loans will notice no immediate change to monthly instalments, yet they gain an indirect benefit because their bank is better able to absorb shocks rather than pass them on through tighter lending standards.

What it means for your mortgage and bank dividends

Analysts calculate that roughly €400 M is locked inside the buffer across the five institutions. Executives insist this does not impede day-to-day lending, and earnings reports for 2025 suggest they are right: BCP posted €502 M in net profit for the first half, while BPI earned €389 M in nine months and Bankinter Portugal tallied €157 M before tax in the third quarter. The sacrifice is felt instead by shareholders, because capital parked for prudential purposes cannot be paid out as dividends or deployed for acquisitions. After two years of rate-driven windfalls, boards are having to explain why distributable profit is not rising at the same pace as reported profit.

A steady property market – for now

The regulator’s confidence rests on data that continue to show upwards momentum. Median sale prices broke €2,065 per square metre nationwide in the second quarter, with Lisbon hovering around €4,600 /m² and Porto near €3,000 /m². Meanwhile, the household debt-to-income ratio slipped below 80 % in 2024, courtesy of wage growth and a stable jobs market. Yet warning lights flicker: the average mortgage size surpassed €193,000 this year, and the stock of homes for sale shrank by 15.7 % between spring 2024 and spring 2025. Should a macroeconomic chill arrive, leveraged households could struggle, and that is precisely the scenario the buffer is designed to confront.

The next checkpoints on the regulator’s calendar

Banco de Portugal is obliged to revisit the calibration at least every two years, but officials signal that an earlier adjustment is possible if the outlook turns. They also stress that, in a genuine crisis, the same rulebook allows them to release the buffer immediately, granting banks rapid access to the quarantined capital so that credit lines to families and small firms remain open. For now, the status quo prevails: a booming housing market, a precautionary 4 % capital layer and a banking system that, while profitable, is being asked to keep some of its winnings on ice for the collective good.