The evaluation of creditworthiness in housing credit consists in the analysis of the risk of credit default, made by the lender. The aim is to understand whether or not the client has the capacity to fulfill the obligations arising from the home loan contract.
Before granting a credit, or also in cases of increasing the total amount of a credit already contracted, the credit financial institution must analyze the bank customer's ability to meet the obligations he intends to assume, that is, it must assess his creditworthiness.
The duty to assess creditworthiness is applicable when granting:
- Housing credit contracts and other credits secured by mortgage or equivalent guarantee, regulated by Decree-Law No. 74-A/2017, of June 23;
- Consumer credit contracts, regulated by Decree-Law no. 133/2009, of June 2, with the exception of credit overruns.
It should be noted that credit banks are not required to analyze the customer's creditworthiness when the contract in question is aimed at preventing or regulating default contexts of other credit agreements, for example, through consolidation or refinancing of contracts.
Find out more, according to an article by the Bank of Portugal.
Solvency assessment: Elements
When analyzing creditworthiness, entities should consider, among other important components, the following elements related to the bank client:
- Age;
- Professional status;
- Regular income and expenses;
- Information contained in credit liabilities databases - as is the case, for example, of the Central Credit Liabilities database of Banco de Portugal;
- Future circumstances that may have a negative impact on your ability to comply with the credit agreement.
Credit entities should consider the impact on the bank client's ability to meet the obligations under the credit agreement of:
- A potential reduction in your income level after retirement age or the termination of your employment contract, if the credit agreement is in effect beyond that time;
- A potential increase in expenses arising from the need to secure payment of other debts for which you are guarantor or guarantor;
- A possible increase in the value of the instalment resulting from an increase in the interest rate in credit agreements with variable interest rate or mixed interest rate (credit agreements that foresee a fixed rate period followed by a variable rate period);
- Changes in the value of the installments to be paid during the term of credit agreements where the parties agree on grace periods for the payment of interest or capital or on the deferment of payment of part of the capital at the end of the contract.
The client must also have the information weighted by the bank entity for the creditworthiness assessment, as well as the indispensable documents to prove the veracity and timeliness of this information.
For example, the bank may ask you to provide documents proving your income over the past three months, as well as information on your regular expenses.
Note that if the customer does not provide the information requested by the financial institution, does not deliver the documents or provides false or outdated information, the financial institution may not grant the credit or, if applicable, may not allow the increase of the credit amount.
Granting credit: Limits
New credit agreements must comply with the limits concerning the value of the property, the customer's effort rate, the term of the loans and the method of repayment, set by the Bank of Portugal.
These limits must be checked together and must portray maximum values, which do not replace the need for the entity to analyze the solvency of each client.
However, these limits do not apply when the contract guarantees to prevent or regularize the default contexts of other credit contracts, such as, for example, through consolidation or refinancing of contracts).
Furthermore, the limits also do not apply to revolving credit agreements, such as credit cards, credit lines and overdraft facilities, nor to credit agreements for an amount equal or inferior to ten times the minimum monthly guaranteed remuneration.
Solvency assessment: Consequences
Banks should only grant the credit, or in cases of increasing the total amount of credit, if it is clear from the creditworthiness assessment that the bank customer is likely to meet the obligations under the credit agreement.
In the case of a refusal, the granting of credit or the increase of the total amount of credit on the basis of the creditworthiness analysis, the entity must, without undue delay, inform the bank customer of this fact.
The financial institution is only obliged to inform the customer of the reasons for refusing credit when this is motivated by the information it has consulted about the customer in the databases of credit liabilities.
Note that even if the result of the creditworthiness analysis is positive, the credit entity is not obliged to grant the credit or to increase the total amount of credit.
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