Getting a mortgage in Portugal

If you’re thinking about buying property in Portugal, have you considered getting a Portuguese mortgage? Most Portuguese high street banks will lend to both residents and non-residents of Portugal now. So, it’s worth weighing up the pros and cons of whether to buy in cash or get a mortgage in Portugal!

Unless you speak Portuguese fluently, it’s advisable to use a mortgage broker who knows the Portuguese mortgage system as not all the banks have fluent English-speakers. Having the right contacts is essential if you want to get the best mortgage deals in Portugal. Portuguese mortgage lenders do not necessarily extend the same offers to all clients, even if they have similar profiles. Mortgage advisors who know and understand the Portuguese mortgage market can often negotiate better deals and products compared to going straight to the high street banks.

Undoubtedly getting a mortgage in a foreign country may be a little overwhelming. However, buying a property in Portugal with a mortgage instead of using your savings could be much more financially beneficial if you get a good deal and a good Portuguese mortgage broker can make it as simple and stress free as possible.

What are the benefits of getting a Portuguese mortgage?

With interest rates in Portugal as low as 1.75 per cent plus Euribor (which is currently negative, so the effective is rate 1.584 per cent ) or around the 3 per cent mark for fixed rate mortgages, borrowing in Portugal, in comparison to refinancing property in the UK for example, is currently very cheap. Buying a property in many regions in Portugal at the moment could end up being a great long-term investment.

By obtaining a mortgage in Portugal, you can also leverage your liquidity to invest elsewhere, spreading your risk!

What is the lending criteria for a mortgage in Portugal?

To assess your affordability, Portuguese mortgage lenders use what is known as a debt-to-income calculation (or debt burden ratio). This is calculation takes into account any loans/finance, additional mortgages etc. against your income. Usually, when getting a mortgage in Portugal lenders will only offer you a mortgage if your existing liabilities do not exceed between 30-35 per cent of your income.

So, for example if the applicant(s) income is £3,000 after tax and they have a mortgage of £450 per month in the UK, plus a car loan of £100 per month and the proposed cost of the mortgage in Portugal is £350 per month their debt (£900 per month) to income (£3,000 per month) is 30 per cent, therefore within the guidelines.

Typically, lenders in Portugal will assess affordability on a case-by-case basis and will also evaluate your current employment status along with the documentation provided (see below for more information about what documents are required).

What is the maximum Loan to Value for Portuguese mortgages?

Generally speaking, in Portugal you can obtain a maximum loan to value (LTV) of 70 per cent of the purchase price (or valuation if lower).  Some banks in Portugal offer a maximum term of 25 years for non-residents and 30 years for residents. Although some banks have a maximum 20-year term. Portuguese lenders will typically lend up to age of 75 years.

The ability to borrow less than €50,000 is not common, because the added costs offset the mortgage.

What fees are involved when getting a mortgage in Portugal? 

As a general rule, most mortgage lenders charge between €150 to 0.50 per cent of the loan amount plus IVA (the equivalent of VAT in Portugal) for the arrangement fee.

The lender will also need to carry out a valuation of the property in Portugal. The standard rate that most banks in Portugal charge for a valuation is €175 plus IVA, however this may cost more (up to €500 plus IVA) if you want the valuation carried out at the beginning of the application. Most mortgage approvals are given “subject to” the valuation being undertaken and therefore this is not done unless approval has been granted.

Some new developments in Portugal will not require a valuation as the bank may have already done a valuation of the whole site already, so it’s worth asking about this when buying a new-build property in Portugal.

You will also need to factor in mortgage broker fees (if you are using one) which can vary. As a rough guide you should budget approximately €500 for an initial fee plus 0.5 per cent of the mortgage amount upon approval. Some brokers may offer a ‘money back guarantee’ if the mortgage is declined.

What is the process when applying for a Portuguese mortgage? 

Before you begin the process of applying for mortgage in Portugal it’s advisable to seek the advice of a mortgage broker who can offer an initial no-obligation assessment of whether it’s likely you’ll be approved for Portuguese mortgage and under what conditions.

Following this initial assessment, the following process usually applies:

  1. Mortgage quote – ordinarily you will receive a full mortgage quote within 24-48 hours.
  2. Sign up – if you decide to proceed with a mortgage application and you are using a mortgage broker you will be asked to sign the terms and conditions and arrange payment of their fee.
  3. Application forms and documentation – you will need to complete the relevant application form and submit the necessary supporting documents. If using a mortgage broker, they will help you fill in this paperwork and offer guidance on the supporting documentation.
  4. Mortgage offer – once the mortgage is approved, you will receive a formal offer. You broker will confirm the conditions of the offer and assist with the proceedings.
  5. Valuation report – once you have received a formal mortgage offer the bank will carry out a valuation of the property. If the valuation is at least the agreed purchase price and there are no legal issues relating to the property, the date and details regarding completion of the property purchase will be confirmed.
  6. Completion arrangements – the funds for the property purchase must be available and transferred to the appropriate account before the completion date. Once you have proven the funds are available, the lender will proceed with the mortage application and a completion date will be arranged.
  7. Completion – the Portuguese mortgage lender will arrange payment. Once the property and mortgage deeds are signed in front of the Portuguese Notary and all the associated fees and taxes have been paid you become the official new owner of the property.

You will also need to obtain your Portuguese fiscal number (NIF number) and set up a bank account in order to get a mortgage and buy a property in Portugal, which your Portuguese lawyer can assist with. You will need to do this before the payment of any funds is required i.e. reservation fees, valuation reports etc.

You should allow a minimum of six to eight weeks for the mortgage process, but sometimes there can be delays that are outside the lender’s or mortgage broker’s control.

Top tip: When transferring funds from one currency to a different currency using a currency specialist can save you up to 3-5 per cent of the transaction value. Find out how a currency exchange expert can save you thousands!  

A mortgage offer is valid for 90 days from approval by the underwriters. However, this does not mean it expires after 90 days as such, but a by re-assessment (which your mortgage broker can help with) and updated statements will be required.

What documents will you need to provide when applying for a mortgage in Portugal? 

When applying for a mortgage in Portugal there are a number of documents that you will need to provide. These documents can vary to a degree depending on the lender in Portugal, but as a rule of thumb the following documents are usually required:

  • Copies of your passport (of all borrowers)
  • Portuguese Tax Number (Número Fiscal de Contribuinte/ NIF number)
  • Proof of income(last three month’s payslips and a letter from your employer. Note all employed applicants need an indefinite contract)
  • If self-employed, your last three year’s audited financials and last three year’s tax returns
  • Your last three months bank statements for all accounts held
  • Proof of available funds for your contribution towards the property purchase, including funds for fees associated with the mortgage
  • Statements of any assets
  • Statements for any outstanding loans including three month’s credit card statements
  • Rental agreements for any property owned
  • Preliminary sales agreement for property to be purchased

In addition, if the applicant has too much debt for the affordability calculations the lender my ask for proof of paid off credit cards.

The level of risk assessment varies depending on the lender in Portugal and some lenders may request additional documents.

Like any mortgage application, it can be a very time-consuming and laborious process, so it’s crucial that you provide all the most up-to-date documents at once to avoid delaying the process. One out-of-date document can result in needing to submit multiple documents again and again, so it’s worth getting organised and providing the documents required as quickly and efficiently as possible.

Buildings insurance is mandatory when buying a property with a mortgage in Portugal. In addition, if the property is your primary residence life insurance is usually required too, however, life insurance is usually optional if the property is not your main home.

You will also need to prove to the mortgage lender in Portugal that the funds for the property purchase – at least 30 per cent deposit plus up to 15 per cent property purchase fees – are available.

Top tip: Highlighting all debit instructions and standing orders on your bank statements makes your monthly outgoings clearer and can make the process much easier. 

What types of mortgages are available in Portugal? 

In Portugal the vast majority of mortgages are variable rate, however, fixed rates are becoming more popular. Banks in Portugal usually offer fixed rate deals for two years, five years and even up to 10 years.

If you’re planning on building your own property in Portugal, there’s also the option for a construction mortgage. You can usually borrow 60-75 per cent of the combined costs of the land and construction, however these mortgages are complex and specialist advice from a mortgage broker is advisable.

Interest only mortgages are only available for construction mortgages in Portugal, and even then, usually only for the first one or two years of the mortgage term.

It’s possible to get a mortgage in Portugal as a retiree in your own name providing you receive a regular pension income. You can also arrange a guarantor, which can be beneficial in terms of inheritance tax if they are also a part-owner of the property.

Remortgaging is possible in Portugal but the rates are higher and there is more scrutiny in the process.

There’s no such thing as a ‘buy-to-let mortgage’ in Portugal, banks do not differentiate their offering. So, if you intend to let the property the interest rates are the same, however, there’s a chance that the LTV offered could be lower (60 per cent).

If you need assistance obtaining a mortgage in Portugal call our team today on 01244 478911 or email us on info@totalbuyingabroad.com to find out more. 

We can also put you in touch with English-speaking lawyers in Portugalcurrency specialistsestate agents in Portugal and more.  

 

 

 

 

Article published: August 29, 2018