Home valuations by Portuguese banks may continue to drop as lenders require more collateral and make getting a mortgage more difficult, according to Ricardo Reis, Cushman & Wakefield Inc.’s head of valuations in Portugal.
Appraisals of houses and apartments fell 6.9 percent in March from a year earlier to an average of 981 euros ($1,283) a square meter, the lowest since September 2008, according to data compiled by Portugal’s National Statistics Institute.
“Lenders are now asking for more collateral from clients, making it more difficult for the borrowers to obtain mortgages,” Reis said by e-mail. “A lower bank valuation reflects the overall drop in property prices and may require potential home buyers to come up with more money to purchase the property due to a lower loan-to-value required by the banks in order to reduce their risk.”
The value of a property typically determines the amount a bank would have to lend for a purchase. Lower appraisals protect lenders from getting stuck with an asset that’s worth less than the mortgage. Home appraisals are usually carried out by independent companies hired by banks, according to Reis.
The drop in home values in Portugal and most of Europe looks set to continue amid declining household earnings and diminished bank lending, Standard & Poor’s said in a report yesterday. In the Netherlands, Italy and Portugal “we expect that falling household incomes in addition to mortgage lending constraints will continue to depress home prices,” S&P said. The ratings company looked at nine countries and found housing markets are only strengthening in in Germany and the U.K.
Portuguese banks remained strict in their requirements for providing loans to individuals and companies in the first quarter, the Bank of Portugal said in an April 24 report.
Lenders are also selling large portfolios of real estate and sometimes offer “considerable discounts that may also weigh on home prices” in the future, Reis said.
Portuguese home prices fell 6 percent in the fourth quarter of 2012 from a year earlier, Eurostat data show. The decline was the fourth-biggest in the euro area after Spain, Slovenia and the Netherlands, according to Eurostat.
The amount of money invested in Portuguese real estate declined 38 percent in 2012 from the previous year to 125 million euros, the lowest in the last decade, according to broker Jones Lang LaSalle Inc.