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Mortgages for Expats in Portugal

Author: Jim Newham
Submitted: November 2013

The market for mortgages in Portugal was tightly restricted during the credit crunch, but it is now starting to open up again. Nevertheless, Portuguese lenders are cautious and many do not lend to non-residents. On the other hand, some local lenders expressly cater to expats, though it will usually take some shopping around to find one. It is particularly difficult to gain funding for the purchase of property in rural areas. The largest lending institutions in Portugal are:

Most of these lenders’ terms, lending criteria and mortgage products are quite similar. If you are not happy with what they have to offer, you could try a foreign lender that is established in Portugal. Otherwise, you could choose to obtain a mortgage from a lender in your home country. If you do so and are from outside the Eurozone, you should be aware that currency fluctuations over the term of the mortgage may lead to your repayments being higher than you had planned for.

To help you find a lender and decide how much to borrow, you might want to hire a mortgage broker. They can help to find you a mortgage that best suits your circumstances, and will take a percentage of the loan amount as a fee. Some estate agents also offer this service.

Requirements

A Portuguese lender will carefully assess your ability to repay before they agree to grant you a mortgage. They do this by calculating the debt to income ratio you will be undertaking while repaying the loan. The ratio is your monthly repayments plus all other debts divided by your income, expressed as a percentage. For Portuguese lenders, typical permitted debt to income ratios are from 35% to 50%. Note that rental income expected from prospected tenants is not included in this.

To be eligible for a mortgage, you will also need to have a good credit rating. While you will need to provide proof of your credit status, a credit check from your home country will be good enough for most lenders. Many Portuguese lenders will stipulate that the mortgage must be for a primary residence. Furthermore, nearly all of them insist that you have life insurance before you can take out a mortgage.

Terms

The normal maximum loan-to-value ratio (LTV) for non-resident expat mortgages is 70% of the valuation or purchase price, whichever is lower. If you are resident in the country, you may be offered an LTV of 80% or more. Note that some lenders impose a minimum loan amount of €50,000 or even €150,000. The loan can be arranged in most major currencies.

Fees are around 1%, and mortgage interest rates start at around 6%. Repayment periods from 5 to 30 years are available. The maximum age at full term is usually 70, in some cases 75 or even 80. Interest rates for Portuguese mortgages are pegged to the Euro Interbank Offered Rate (Euribor for short). They are reckoned at a small percentage above the 3-month or 6-month Euribor rate.

Types

In Portugal, variable rate mortgages are the most common. In some cases, unlike what normally happens, the amount paid per month does not increase or decrease. Instead the number of payments that you make rises or falls accordingly. The early redemption penalty for variable rate mortgages, as set by the Bank of Portugal, is currently at 0.5%

Fixed rate mortgages are also available at most banks. The fixed rate period can be set from one to 30 years, after which it reverts to variable rate. The early repayment charge during the fixed-rate period is 2%.

The vast majority of mortgages offered in Portugal are on a capital plus interest repayment basis. The less secure interest-only mortgages are much harder to find. Other more unusual forms of mortgage deal, such as construction loans, equity release and off-plan mortgages are hard to come by.

Application

You need to have a Portuguese residence card, tax code, bank account and you also need to provide proof of regular income. The bank will make an independent assessment of the property’s value using one of their experts. They will charge you around €250 for this. As a minimum, the documents you need are:

 

 

 



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