Getting a Mortgage in Portugal

Over the years, Portugal has become a very attractive property investment location for many foreigners, and it is easy to understand why. Not only is there a favourable tax regime for non-habitual residents in Portugal but, should your chosen location be in the Algarve, you will also benefit from over 300 days of glorious sunshine as well as wonderful heritage, traditions and cuisine. In recent years, the Algarve in particular has seen a huge influx of foreign investors, which in turn has encouraged the development of facilities and resorts.

If you are considering buying a property in this wonderful European haven, you may need to apply for a mortgage. If so, it is advisable to start your mortgage application as early as possible in the process, as this will be of great benefit when it comes to choosing the right property and making decisions on how much you would like to offer. First thing’s first, you will need to make sure you compare banks carefully.

Portugal has many banks that offer a variety of deals and rates. So, it is important that you do your research, considering the things that are most important for you. The standard mortgages on offer are fixed rate and variable rate.

If you are looking for an Interest-only mortgage, these are usually only available for new constructions, and typically only for a two-year term. It is also worth noting that home and life insurance is usually compulsory when you take out a mortgage in Portugal.

Can foreigners get a mortgage in Portugal?

You may be wondering if there are any restrictions for foreigners when it comes to applying for a mortgage in Portugal. Well, you will be pleased to know that the Portuguese government does encourage foreign property investment and there are no restrictions for non-residents – provided you have the necessary paperwork to back up your application.

Most Portuguese lenders provide mortgages to overseas nationals, with no restrictions as to whether they are residents or non-residents. It may also be of interest to know that mortgages are not restricted to individuals who are employed or self-employed.

If you are retired, you can also get a mortgage in Portugal – as long as you have a regular pension income. In this situation, you can put forward a guarantor, which will not only support your application, but will also be beneficial when it comes to inheritance tax if they are put down as part-owners.

What are the lending criteria and how do I apply for a mortgage in Portugal?

Before starting the application process, as mentioned earlier in this article, you will need to research which bank you wish to go with. You must also have a fiscal number in order to carry out a financial transaction in Portugal. Once you have your fiscal number and have chosen your bank, you should find out their required list of documents for the application process. These vary from bank to bank and can include a combination of any of the following – depending on your personal situation:

Standard Documents:

>Photo identity

>Portuguese tax number

>Proof of address (copy of recent utility bill)

>Current proof of residency, if applicable

Financial Documents:

>Proof of current income earnings such as salary income, dividend payments, investment income, pension income and rental income.

> Employer’s reference (if employed) confirming current employment length of service and gross annual salary.

>3 Years of Company Profit & Loss and Balance Sheet (for self-employed).

>Latest personal tax return

>Bank statements – last 60 days of incoming and outgoing cash flow

>Bank reference letter

>Copy of tenancy agreement(s)

>Documentation of existing rent, mortgage and debt obligations

>Credit report

People often ask if it is easy to get a mortgage to buy a property in Portugal. When it comes to getting a home loan, provided you are able to produce the combination of documents the bank requires, you should have no problems. 

How much can I borrow in Portugal? 

If you are looking for a rough estimate of how much you will be able to borrow, many Portuguese banks have mortgage calculators on their websites that consider net borrowing, insurances and tax. The figure you end up with will be an estimated monthly repayment. However, this will only be an estimate and how much you can borrow will depend on your personal circumstances, as well as the value of the property in question.

Once you provide the bank with the details of the property you wish to purchase, the bank will arrange for an independent engineer to value your property – in order to ascertain its value for the purposes of the mortgage amount they are willing to lend. If you are applying for the Golden Visa Residence Permit in Portugal and wish to take out a mortgage, you will need to first transfer the required minimum investment amount to a Portuguese bank account. If your investment exceeds the minimum investment amount, you may then take out a mortgage for the exceeding part.

For a regular mortgage application outside of the Golden Visa programme, the amount you can borrow will depend on certain criteria. Residents for example, will generally need a minimum deposit of 20%-30% of the property’s purchase price. Borrowing can vary but will normally not exceed 80% of the purchase or valuation price.

Non-residents should aim for the higher end of the deposit value (30%) and can probably count on around 70% of the purchase or valuation price. 

When it comes to properties that are intended for commercial use, such as a restaurant or a shop, the maximum mortgage is usually 50% of the price (or the valuation if this is lower).

Generally speaking, most mortgage lenders cap the sum of any existing debts and new mortgage payments at 35% of the monthly income, after tax.

It is important to note that the above percentages are merely a guideline based on averages at the time of print and they do differ – depending on the lender. Special deals might become available at various times of the year and you may be able to negotiate the terms of your mortgage with your bank in certain situations. If you use a broker, they may be able to get you a great deal too. So, it is always advisable for you to check all the options available before committing to anything.

Now that you have the answers to some of the financial questions you may have had, before you start the process, you may want to arm yourself with more useful tips and information about buying a property in the Algarve as a foreigner. If so, our experienced team will be only too happy to help guide you and answer any additional questions you may have. We would love to be part of your new adventure!

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