State-Backed Lending to Expand in 2025: Young People Await Opportunity to Buy Their First Home

Flavia L. Lamattina

Portugal is facing an increasingly evident housing crisis, challenging a generation of young people striving to achieve the dream of homeownership. A limited supply of properties for sale has caused prices to soar, especially in the urban areas that attract so many young adults. Low wage levels and a lack of incentives do little to offset the high mortgage rates on offer in the Eurozone. Bureaucratic and regulatory barriers blunt the ambitions of the paperwork-averse, while down-payments of 10 to 30% and high taxes and fees at closing exacerbate the struggle in an environment of low savings rates and economic and market instability.
In response to this critical situation, the government has launched an ambitious plan to revitalize the real-estate market by offering tax incentives and financing options targeted at young people aged 18 to 35. These measures, which promise to save thousands of euros for those starting their lives, are expected to be a game changer in the obstacle course that is acquiring a first home.
Since August 1, 2024, young people have enjoyed exemptions from the IMT (Municipal Property Transfer Tax) and Stamp Duty. Now, in a more ambitious proposal, the government aims to guarantee the possibility of financing up to 100% of a first home purchase, benefiting young people with an annual income of up to approximately 80,000 euros. Beneficiaries must be tax residents in Portugal and not be outright or partial owners of any other property. The credit must be used for the purchase of the applicants’ first permanent home, and they must have no debts to the Tax Authority or Social Security, according to Decree No. 236-A/2024/1.
The government support promises to be substantial: 15% of the transaction value will be guaranteed through the Directorate-General of the Treasury and Finance (DGTF). This vital incentive will allow banks to finance the full value of the property. However, with property sales of up to 450,000 euros qualifying for this program, questions about its ultimate effectiveness are inevitable. Many people in the targeted age bracket make around 1,000 euros a month. It is not easy to get a loan at that income level in a real estate market where prices are constantly rising. Banks will continue to assess potential borrowers’ financial capacity in compliance with the rules on the so-called effort rate, which is generally capped at 35%. In other words, someone earning 1,000 euros per month will be limited to a monthly mortgage payment of no more than 350 euros.
With this new measure, in effect since late September but to be fully implemented in January 2025, the market for homes between 150,000 and 300,000 euros is expected to heat up. Increased demand for properties in a market with limited supply in this segment could have the unintended effect of further driving up real-estate prices in Portugal. So this could end up favoring those who are already better off financially rather than those who truly need government support.
In addition to the increased demand and the current limited supply, we must consider the economic instability caused by the two recent economic crises and the impact of the pandemic, which led many people to deplete their financial reserves. Given all these factors, it is crucial to expand the discussion of potential ways out of the housing crisis in Portugal. One example would be extending this program to workers up to 45 years old, widening the pool of beneficiaries to meet the new demands of Portuguese society.
The study “Young People in Portugal: A Portrait Based on the Census,” published by the National Institute of Statistics, reveals a drastic decline from 2011 to 2021 in the proportion of the Portuguese population aged between 15 and 24, which fell by 17.5%, while the number of young foreigners settling in Portugal increased by 23.4%, creating pressure on urban markets, particularly in Lisbon and Porto. The same study also points to a drop in the proportion of economically active young Portuguese, from 66.3% in 2011 to 58.1% in 2021.
Thus, the next steps of the housing plan not only need to be swiftly implemented but also adapted to ensure that a larger number of younger adults can truly achieve the dream of homeownership, without always relying on financial support from their parents. Therefore, the hope of transforming the country’s housing reality remains alive, but the challenges to overcome are many. ■