Bank loans and residential property market - EURO Reflexes in Portuguese property markets

There are no relevant academic studies on Portuguese property markets that can provide accurate information to understand this particular market. Therefore, we cannot find any reliable indicators about the evolution of Portuguese property market nor understand the effects that he has in the general economy. It is significant that in a report from the European Central Bank (Asset Prices and Banking Stability, April 2000) we can find information of residential and commercial prices evolution, as well as outstanding mortgage credit, from all the countries of EU being Portugal and Greece the only exceptions. The absence of this information is particularly important if we consider the evolution of Portuguese economy in this last decade. Since the decision of become a member of the EURO zone Portuguese economy as considerably changed. Portugal has departed from inflation and interest rates above the 20% in the eighties to an inflation of 2,9% and an interest rate of 4% in the end of 2000. These changes, associated with a rapid economic growth, have provoked an abnormal rise in the volume of the outstanding residential mortgage credit, especially after 1995. The current paper will analyse the changes occurred in the outstanding residential mortgage credit in this last decade and its implications to the structure loan capital from financial institutions. This paper is the first outcome from a larger project that aims to evaluate the changes in property market due to the Portuguese entrance in the EURO zone and the implications to Portuguese economy.