In its 2006 Financial Stability Report, the Bank forecasts that thousands of families who previously enjoyed relative financial stability will now struggle to repay their debts. This warning follows a decision last week by the European Central Bank to raise interest rates by 25 basis points to a figure of four percent. According to analysts, the ECB rate is set to climb to a figure closer to five percent before the year is out with consensus being that a rate of at least 4.5 percent will be in force within the next five months.

The Bank of Portugal, supported by the Finance Ministry in its forecasts, says the financial outlook is bleak and is concerned that families could be forced to reevaluate their loans and mortgages.

In some cases they could be forced into the desperate action of selling off property due to their inability to meet repayments.

In terms of bad debt, Portuguese families were failing to pay back €3.2 million each day to banks, figures for the first months of the year indicate.

The total for bad debt currently stands at €2.2 billion, with mortgages the area where most consumers are now finding it impossible to keep up with their monthly instalments.

One real estate assessor employed by Portugal's largest private bank, Millennium bcp, told The Portugal News that there has been a dramatic rise since the beginning of the year in requests.

The Portugal News