Government Order No. 236-A/2024/1, of 27th September

Government Order No. 236-A/2024/1 (“Government Order”), was published in the Republic Diary on 27 September 2024, regulating the conditions for the granting of a personal guarantee by the State in the context of bank loans for the purchase of a first permanent home for young people up to the age of 35.

The Decree-Law no. 44/2024, of 10 July (“Decree-Law”) has established the basic framework for young people to benefit from a personal guarantee of the State when taking out housing credit (either with credit institutions based in Portugal or with Portuguese branches of credit institutions based abroad). The Government Order now sets out the conditions and defines how those institutions can adapt themselves to the new legal framework.

Who can benefit from the State Personal Guarantee?

Beneficiaries will be individuals who fulfil all the following conditions:

• Age between 18 and 35;
• Tax residence in Portugal;
• Have income that does not exceed the 8th bracket of the Personal Income Tax (IRS);
• Do not own an urban building or an autonomous fraction of an urban residential building;
• Have never used the State’s guarantee under the Decree-Law;
• The value of the transaction does not exceed €450,000.00;
• They have regularised their tax and social security situation.

In these cases, the personal guarantee of the State, which cannot exceed 15 per cent of the value of the transaction, is intended to enable the credit institution to finance the entire price of the transaction.

How does the State Personal Guarantee work?

The State personal guarantee is provided in the form of a joint liability (“fiança”) on contracts executed until 31 December 2026, and credit institutions must adhere to the ‘Protocol on the State Personal Guarantee to Credit Institutions until 26 October 2024, to enable the granting of permanent home loans to young people up to the age of 35’ (‘Protocol’) proposed by the Directorate-General for the Treasury and Finance (DGTF).

Credits guaranteed by the State can be formalised by borrowers with the institutions that have signed up to the Protocol. The State personal guarantee will be in force for 10 years from the conclusion of the credit agreement. As its amount cannot exceed 15% of the value of the transaction, the value of the guarantee is adjusted to a proportionally lower amount if the financing requested from the credit institution is less than 100% of the value of the transaction.

This public support for house purchase does not  prejudice the free decision of credit institutions to grant or refuse credit. The credit institution remains fully responsible for assessing the borrowers’ effort rate based on credit risk analysis, and must inform applicants of the reasons for ineligibility. In this regard, the requirement to set up a mortgage on the property in favour of the lender is maintained, which must be in force for at least as long as the personal guarantee from the State remains in force, without prejudice the institution which may always request other guarantees deemed necessary for the approval of the credit, following its usual procedures and good practices.

Other questions

However, changes to credit agreements for the purchase of housing, in particular changes to the interest rate, decisions on capital or interest shortfalls, cancellations, donations and restructuring that may be necessary, may not represent an increase in the state’s liabilities. Otherwise, the state’s guarantee will be extinguished. And if the guarantees provided by the borrower are forfeited and the guarantee provided by the state is called upon, the financial institutions are obliged to share with the state the amount obtained from the forfeiture, pari passu, in the same percentage as the transaction was guaranteed by the state.

It should also be noted that the personal guarantee of the State is not extinguished in cases of credit transfer, provided that the institution to which the credit is transferred has also adhered to the Protocol and has the amount to hold this transfer under the State guarantee. Likewise, the guarantee will not be extinguished in cases of assignment of credits or of the contractual position, at the lender’s request, provided that the assignee has adhered to the Protocol or the DGTF consents.

Written by Bernardo Vasquez Tavares, associate lawyer from the Banking and Finance Department.