Portuguese Mortgages

If you are planning to buy a Portuguese property and require mortgage finance in Portugal, you will want to ensure that you find the best Portuguese mortgage for you. Before getting a Portuguese mortgage to fund your property purchase, you should get as much information as possible about the Portuguese mortgage rates and options available to you to avoid paying thousands of Euros more than you need to over the lifetime of your mortgage.

The mortgage market in Portugal has numerous lenders offering a variety of Portuguese mortgages which can be a bit of a headache to navigate. There can be big differences in the costs and terms of the Portuguese mortgages on offer.

We have provided some general information about mortgages in Portugal below to help you get started. If you require any further information or details of a recommended Portuguese Mortgage Specialist who can help you, please contact Total Buying Abroad on 01244 478 911 or at info@totalbuyingabroad.com.

Portuguese Mortgages- The Basics:

Mortgages in Portugal are sold either directly by the lender themselves or through mortgage brokers. Portuguese mortgages are usually offered on a Capital & Interest repayment basis only. Some banks do offer a limited number of years at the beginning of the mortgage term on an interest only basis. Usually, once the interest-only terms have expired, it is automatically converted into a Capital and Interest mortgage for the remainder of the term.

The maximum loan to value for a Portuguese mortgage is usually 60-80% of the valuation or purchase price, depending on the lender.

The maximum term of any mortgage is usually 30 years for non-residents (this can be up to 50 years for residents) and to maximum age of 70-80. This may vary depending on the type of loan and the lender.

Portuguese banks will usually lend against property as long as it has a habitation licence.

Criteria For Portuguese Mortgages:

Affordability is the main criteria for deciding eligibility for a Portuguese mortgage. Therefore in order to qualify for a mortgage in Portugal, the Portuguese mortgage lender will need to establish whether you can afford to maintain the mortgage repayments. In order to assess whether you will be able to afford the Portuguese mortgage repayments, the bank will review details of your income such as salary, investment income and rental income.

Your existing outgoing payments are also taken into account to analyse your existing financial commitments. This will include any other mortgages or rental payments, loans, credit card payments and other commitments such as maintenance payments or any court judgements against you.

Documents Required for Portuguese Mortgage Application:

You will need to supply proof of your income and existing liabilities. The following is an indication of some of the information you will be asked to provide:

If you are employed you will usually be asked for:

  • Your last three month’s payslips
  • Your latest P60 and employer’s reference
  • Your last three month’s personal bank statements
  • Employers reference letter

If you are self-employed you will usually be asked for:

  • Your last three year’s Accounts
  • Latest company and personal tax returns
  • Your last three month’s personal and business bank statements

If you have rental income you may also be asked for a copy of any tenancy agreements.

The Portuguese Mortgage Process

Before proceeding with a Portuguese mortgage application, you will need to ensure that you have the following:

Details of a recommended Portuguese lawyer

It is important to seek advice from a Solicitor in Portugal before agreeing to purchase a property or obtain a Portuguese Mortgage. Your Portuguese lawyer can help to obtain any necessary property documentation required by the Portuguese Mortgage lender and also ensure that the legal contracts protect you and any deposits paid should there be any difficulties with the mortgage application.

A Portuguese Fiscal Number

You will need to obtain a Portuguese fiscal number. This is an identification and tax number in Portugal required to carry out a number of financial transactions in Portugal like opening a Portuguese bank account or purchase a property in Portugal. For further details see: Getting Portuguese Fiscal Number.

The Portuguese Mortgage process

  1. Contact a Portuguese Mortgage Specialist

You will need to review the range of Portuguese mortgages available to establish the best Portuguese mortgage for you. Whilst there is no reason that you can not review the Portuguese mortgage market yourself (if you have the time to dedicate to a thorough search), many people choose to use a Mortgage Broker who specialises in Portuguese mortgages to assist them. Instructing a Portuguese Mortgage Advisor can have considerable advantages as well as reducing the time and hassle in finding and reviewing your options.

There are no regulations on offering advice on overseas finance, so only choose a company with a solid, longstanding reputation. If you would like details of a recommended Portuguese Mortgage advisor, contact Total Buying Abroad on 01244 478 911 or at info@totalbuyingabroad.com.

  1. Obtain a Portuguese Mortgage Quotation and Agreement In Principle

Your Portuguese mortgage advisor will obtain a Portuguese mortgage proposal, which shows the Portuguese mortgages and rates available to you based on the information you have provided to them and obtain an agreement in principle.

Having an approval in principle will mean that, when you go house hunting for your perfect property in Portugal, you will have your finances in place, will know what your maximum budget is; you will know what cash deposits you will require and how much the entire purchase process will cost.

  1. Documentation

Your Portugal mortgage specialist will obtain the lenders application forms and confirm the documentation that you will be required to provide in support of your Portuguese mortgage application. Your Portugal mortgage specialist will submit the application to your chosen lender and liaise between you regarding any queries.

  1. Valuation

The Spanish Mortgage Lender will arrange a valuation of the property to ensure they are satisfied that there is sufficient value in the property to cover the loan. This is not a structural valuation and the Bank valuation does not protect the buyer against future problems.

If you would like a structural survey for a property in Portugal see Portuguese Surveyors

  1. Mortgage offer

If the Portuguese mortgage lender is satisfied with the mortgage application, document and valuation, the mortgage will be offered.

  1. Completion

Completion of a Portuguese mortgage takes place in front of a Portuguese Notary, together with the completion of the property purchase when a mortgage deed will be signed.

Benefits of using a specialist Portuguese Mortgage Broker

Although it is possible to deal directly with a Portuguese Mortgage Lender, please see below some of the benefits of using a specialist mortgage broker to help you with obtaining a mortgage in Portugal:

  1. Saving you time and hassle:

Obtaining a Portuguese mortgage can be complex and time consuming, especially if you don’t speak fluent Portuguese. A mortgage broker who is experienced in obtaining mortgages in Portugal can save you the time and hassle in finding the right Portuguese mortgage for you.

  1. Saving you money:

Based on the information you give them, a Portuguese mortgage advisor will be able to advise you as to how much you can borrow, what the monthly fees will be and any additional costs involved.

Portuguese mortgage brokers work with many mortgage lenders in Portugal, and will know about the products on offer. Good brokers know how to interpret the small print and identify the hidden costs. They know which banks are offering promotions and special deals which could save you money.

  1. Helping you to avoid the pitfalls:

By understanding your mortgage needs in Portugal, a Portuguese mortgage broker will also evaluate your creditworthiness and obtain an accurate idea of how much debt you can cope with. This can help them select the best Portuguese mortgage product for you. It is important that you do not take on a mortgage that is bigger than you can manage, taking into account potential interest rate rises and currency fluctuations. A specialist overseas mortgage broker can help you avoid difficulties with this.

  1. Experience and Market knowledge:

Specialist Portugal mortgage brokers are regularly updated on the best Portuguese mortgage deals and will check all the documentation for your application.

Experienced overseas mortgage brokers have helped many other foreigners to get a Portuguese mortgage, which gives them valuable experience that you can benefit from.

  1. Negotiating Power

Portuguese mortgage specialists can use their reputations with lenders in Portugal to leverage the best deal for their clients.

A combination of business volume, convenience for the lender and reduced risk for lenders, means that mortgage lenders in Portugal value what the mortgage brokers do in bringing them clients. They are often therefore willing to negotiate better terms to win their business.

  1. Help you to understand the process and documentation

Spanish mortgage advisors can help you to understand the mortgage application process, the documents required and provide you with the information required in a language you understand.

For details of a recommended Spanish Mortgage specialist, contact Total Buying Abroad on 01244 478911 or at info@totalbuyingabroad.com

Portuguese Mortgage Costs

In addition to the usual costs associated with the property buying process in Portugal, if you obtain a mortgage for a Portuguese property you will also need to budget for the following additional costs:

Portuguese Mortgage Broker Fees

Mortgage brokers who specialise in assisting clients find mortgages for Portuguese property purchases may charge a fee for their services. The amount of fees (if any) charged varies from company to company and may depend on the amount of work involved and whether they are remunerated by the mortgage company or not.

Portuguese Lenders Valuation Fee

Valuation fees vary from lender to lender but are usually a few hundred euros.

Portuguese Lender’s Fees

Portuguese Banks usually charge a fee known as an opening fee or arrangement fee. These generally range from a couple hundred euros to 0.25% of the property valuation. They usually also charge an administration fee of around €200-€400.

Insurance

Most Portuguese lenders will insist on you taking out Life insurance as well as property insurance.

Legal Fees

Lawyers fees, Notary fees and Land Registry fees are increased where the Portuguese property purchase requires a mortgage due to the extra work required in dealing with the lender, the mortgage deed and registering the mortgage.

Top Tip

Your Portuguese mortgage will probably be in euros and mortgage payments will need to be transferred to your Portuguese bank account each month, together with money for additional regular expenses, such as utilities, maintenance or management fees. If the income you use to make the repayments is not received in euros (e.g. your salary or rental income) you will need to consider the impact of fluctuations in exchange rates, which may significantly affect the cost of the monthly mortgage payments.

It is therefore recommended to use a foreign currency exchange company to convert your funds to euros for your Portuguese mortgage payments and other bills. They can help you save money on your Portuguese mortgage repayments as they offer an exchange rate far superior to that offered by high bank and don’t usually charge any additional fees, as banks do.

If you would like more information about a recommended currency exchange company, contact us and we will be happy to put you in touch with a reputable currency specialist who can provide further details.

Pensions and Investments in Portugal

If you have moved or are planning to move to Portugal you will need to know how to receive your income, such as state pension, private pensions and investment income in the most efficient way from both a practical and a tax perspective in Portugal.

Any existing investments structures, which generate income for you whilst in your home country, may not continue to receive their tax benefits once you become a resident in Portugal and subject to Portuguese tax rules.

There may also be tax advantages which you would be eligible for under Portuguese law when you receive your income in Portugal but are not benefitting from as part as your existing pension or investment structure.

We have set out some information below to assist you with considering your income arrangements in Portugal to help you make sure that these are dealt with in the best way possible for you.

What happens to your state pension if you move to Portugal?

If you are receiving your state pension from the UK, you can still claim your UK State Pension if you live in Portugal. If you currently live in Portugal but have never worked in Portugal, you should claim your UK state pension by contacting the International Pension Centre (IPC) in the UK.

If you are moving to Portugal from the UK and already claim your state pension you should inform the IPC of the changes to your circumstances to prevent any problems with your pension payments.

Once you are resident in Portugal you will need to declare income from your UK state pension to the Portuguese tax agency. Depending on your personal circumstances, income from a UK state pension may be liable for tax in Portugal.

If you live part of the year in Portugal, you must choose which country you want your pension to be paid in. It is not an option to have your state pension paid in Portugal for part of the year and in another country for the rest of the year.

If you are receiving a State Pension from a country other than the UK, you should contact the pension authority in the country the pension will be received from to ascertain how to receive your state pension when in Portugal.

What happens to my private pensions and investments if I move to Portugal?

You can usually receive the income from your private pensions and investments in Portugal. Such investments are however likely to be structured so that they are tax efficient in the country in which they were set up and are not necessarily tax efficient in Portugal. If these are not reviewed in light of your move to Portugal, you could end up paying more tax than you need to. If you are an expatriate living in Portugal, or planning to move there, you should consult a specialist financial advisor in Portugal, who can review your options with you and advise you as to the tax implications of your pensions and investments in Portugal.

It may well be that you can gain tax benefits in Portugal by restructuring your pension or other investments so that you can, legitimately, pay the least amount of tax possible in Portugal, while maintaining your investment objectives.

I have a financial advisor in my home country, do I need a financial advisor in Portugal?

Many people have a financial advisor in their home country to look after their investments. Financial advisors will structure their client’s investments to ensure that the investments are appropriate for their clients needs and set up in the most tax efficient way in that country. Financial advisors are usually (although there are a few exceptions) only qualified to advise clients about suitable structures based on the tax liability in the country in which they practice.

If you move to Portugal or become a tax resident of Portugal you will usually be liable for Portuguese taxes. You should therefore have a financial advisor qualified to advise regarding Portuguese tax and investments, who can advise you as to the best way to structure your investments so that they work under Portuguese tax laws.

Many people do feel a loyalty to their existing financial advisors in their home country, however they do not usually have the expertise to ensure that your investments are dealt with in the most efficient way from a Portuguese tax perspective.

How will my pension and investment income be taxed in Portugal?

If you are spend more than 183 days a year in Portugal you will become a resident of Portugal for tax purposes and will be liable to pay income tax under the Portuguese tax rules. Income taxes in Portugal are relatively high compared with other countries, however there are various tax options available to people moving to Portugal which can usually significantly reduce the amount of tax you pay and for some people can mean that you do not pay any income tax at all!

One example of this is the Non-Habitual Residents tax scheme. Newcomers to Portugal may be able to benefit from the Non Habitual Residents scheme, which offers substantial tax exemptions for the first 10 years of residence. This scheme is available to both people in employment and those who are retired. Despite the confusing title you can also be eligible for this if you intend to be resident in Portugal.

Under the Non Habitual Residents scheme you can opt for a special tax rate of 20% if your employment/self-employment income is derived from a particular profession or activity.

One of the most attractive parts of the scheme however is that it also provides tax exemptions for income from a foreign source i.e. income coming from outside of Portugal, provided certain conditions are met. You may therefore find that either all, or a proportion of, your income coming from outside of Portugal, including pension income, is exempt from Portuguese taxation.

Aside from the NHR scheme there are many other effective tax planning opportunities available in Portugal.

It is therefore very important to take professional advice on your tax matters in Portugal to ensure they are both compliant and tax-efficient in Portugal.

If you require details of a recommended financial advisor in Portugal who can advise you about how to deal with your income, investments, succession plans or taxation matters, contact Total Buying Abroad on 01244 478911

Estate planning and Portuguese inheritance taxes

Portugal has its own succession and inheritance tax regime, which may be very different to the tax rules in your home country. For example, the UK imposes inheritance tax on the worldwide assets of a person domiciled in the UK, whereas the Portuguese equivalent of inheritance tax, Stamp Duty, only applies to assets located in Portugal.

Spouses and children are exempt from Stamp Duty and for everyone else the tax rate is only 10%- considerably lower than in many other countries (i.e. the UK which is 40%). There is also no wealth tax in Portugal.

Portugal can therefore provide considerable estate planning benefits. As everyone’s situation is different however, you should make sure you take professional advice regarding your own specific situation to make sure any arrangements are compliant and suitable for you and your family circumstances.

If you would like details of a recommended advisor to assist you with Portuguese succession matters or with regard to your income, investments or taxes in Portugal, contact Total Buying Abroad on 01244 478911