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With house prices registering record-breaking values and most households having variable rate mortgages, Portugal is one of the countries most vulnerable to the risk of a real financial crisis, says the International Monetary Fund (IMF).

Analysing the risk of 27 advanced economies, the IMF's Global Financial Stability Report concluded that “economies with high house prices and high levels of household debt with variable interest rates are particularly vulnerable to a consequent stress in the financial sector”.

This is the case in Portugal, where house prices have continued to rise and most households have variable rate mortgages. According to the report, Portugal is one of the countries with the highest risk of a sharp correction in property prices in the medium-term.

The IMF has no doubts that the residential market has been impacted by the drastic increase in reference interest rates by central banks around the world, such as the European Central Bank (ECB) and the US Federal Reserve.

However, there are factors in the Portuguese market that continue to sustain high property prices in the short term, such as restrictions on the supply of houses, lack of skilled labour in construction, and still “robust” disposable income levels.

These factors should “help partially offset the effect of the tightening of monetary policy on housing demand, thus reducing the adjustment in house prices so far”, concludes the report.

It wouldn't be the first time that experts warn of a shift in the real estate market. The best advice for both buyers and sellers right now is to work with respected local estate agentsContact the Algarve Home Sales team for more information.