Portuguese Mortgages for expats and non-residents

Portugal is an attractive option for those looking to buy a property overseas, not just in terms of location but also for ease of purchase and getting a mortgage. While some people choose to re-mortgage their property in the UK to unlock enough equity to purchase property in Portugal, approaching a bank in Portugal to get a mortgage is also very viable.  

There are lots of benefits of getting a mortgage in Portugal. It is a beautiful country with a rich culture, a recovering housing market and a multilingual and modern banking system. Plus, properties are, on the whole, still very affordable.

There are little to no restrictions on property ownership for foreigners, and non-EU citizens can also get what is known as a ‘golden visa’. This is a five-year residency permit you can get if you buy a property that’s worth at least €500,000. The golden visa allows you to apply for permanent residency in Portugal after five years. It also lets you work or study there.

In this overview, we’ll help you to get started on the process of securing a mortgage in Portugal. You’ll discover the key things to watch out for, what you’ll need to have to hand and whether buying a property in Portugal is the right option for you.

Things to look out for when considering a Portuguese mortgage

Figure out the figures

You’d be wise to start your mortgage application process as soon as possible. This will give you a good idea of your budget.

Once you have your budget secured, it’s time to start looking at properties! It’s generally best to factor in around 7-10% extra, for any costs that may be incurred in the registration and transfer of your property, as well as around 30% of the purchase price at your deposit to secure the mortgage itself.

Portuguese banks currently offer foreigners mortgages with the difference between the loan and the value of the property (Loan to Value or LTV) of between 60-70%. The standard margins are between 1.70% and 2.50% (though this depends on both the loan amount and the LTV).

Some caution from the banks

Following the recent property crash in Portugal, some banks are understandably a little cautious about offering home loans. Often, they’re only setting them up on a repayment basis, including interest and payment towards the capital loan amount. In these instances, borrowing rates start at roughly 6%. There are still some interest-only deals available, but you need to be sure you know what you’re signing up for, as any failure to keep up repayments puts your home at risk.

There are also some banks that require you to take out life insurance, which can really add on to the costs of a mortgage. These will also require medical exams (for which non-residents would have to travel to attend).

Banks will also be looking seriously at whether or not you are likely to be able to pay the mortgage to the full term. Laid out in its simplest terms, they’ll use an outgoings-to-income calculation to figure this out, which means your total monthly income, subtracted the monthly outgoings (including the new mortgage payment). This amount shouldn’t go above 30-35%. You’ll get a much more accurate assessment of your personal situation when you’ve consulted the bank or your mortgage broker.

What you need to provide to get a Portuguese mortgage

In order to get a mortgage in Portugal, its usual to have secured a minimum deposit of 20% of the property’s purchase price (so you’ll need to have a very rough idea of your budget before you get started). Depending on the lender you use, the amount you can borrow can be between 60% to 80% of the purchase or valuation price. You’ll also find that, depending on the lender, there are loans available at both variable and fixed rates.

Portuguese lenders will require a range of supporting documentation in order to process a mortgage application. These documents can include:

• Copy of passport
• Copy of Portuguese tax number
• Proof of address (copy of recent utility bill)
• Credit report
• Recent bank statements
• Recent pay slips
• Latest personal tax return
• Copy of tenancy agreement(s)

You’ll need to provide the bank with some proof of your current income. This can be made up of rental income, dividend payments, salary income, investment income,  and pension income. This is proven through pay/pension slips, tax returns and bank statements.

If you’re approaching a lender directly, you will also need to provide information about employment history as well as any existing debts. The bank will also require a property valuation from an independent engineer. The lender needs to be sure you will be more than able to meet the monthly cost of your Portuguese mortgage.

Get advice from a Portuguese mortgage specialist

When facing complicated transactions overseas, especially concerning large investments, it’s always well worth your time to seek independent advice. Investing in someone who understands the market requirements, as well as being able to point out hidden costs and troubling fine print, would be a wise first move when looking to get a mortgage in Portugal.