How to get a mortgage in Portugal if you are a UK resident
There are many benefits to moving to Portugal: it boasts a low cost of living, a comfortable and warm climate, a well-developed education system, good healthcare, and affordable properties. Portugal is a great all-around country to call home.
So it’s no wonder you’re likely considering getting a mortgage in this beautiful country. Or perhaps you want a holiday home in a nice area with lots to do and great beaches, either way, you’ve come to the right place. Read on to learn all about mortgages in Portugal.
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The situation in Portugal
There are plenty of opportunities for foreigners to get loans from Portuguese mortgage lenders. The Portuguese government supports foreign investors and places no restrictions on non-residents in and outside the EU.
Property prices range from €280,000 for properties in low-density areas to €500,000 in other regions.
Types of mortgages in Portugal
Selecting the right mortgage is an important choice. Portugal offers different mortgage loan options for residents and non-residents, although all options are principal plus interest loans. Let’s go through them.
Fixed-rate mortgages
These mortgages allow you to pay your mortgage back at a consistent rate over a particular period, usually, until the mortgage contract has to be renewed again. However, certain banks may offer fixed rates that stay the same for up to 30 years, which protects from fluctuations in the prime rate.
Variable-rate mortgages
Conversely, variable-rate mortgages don’t offer this kind of protection but stay in line with the base rates of the Euribor. Unfortunately, there is little certainty here regarding what you might pay over the mortgage term, making it a riskier choice but one that could have long-term benefits during the correct investment period.
Non-resident mortgage in Portugal
Non-resident mortgages in Portugal may require a high deposit, specifically if you’re not going to be living in Portugal. In that case, the best you can get is a 70%, maybe even an 80% minimum deposit, if you’re lucky. However, living in the country can expect even 90% of the purchase price covered with the loan.
Buy-to-let and commercial properties
Additionally, if you’re only opting to buy-to-let, then you should know that you may have to pay a deposit of up to 40% for the property. And if not, you’ll be expected to be able to afford the mortgage repayments without any rental income. Further, Portuguese law has a lot of protection for tenants and much less for landlords – this is something to keep in mind.
Commercial properties are even more stringent, with deposits of 50% required to buy property; it’s not cheap to set up a business in this country.
Portugal Golden Visa
The Golden Visa is a sought-after residency program in Europe created for non-EU citizens and was released in October 2012 to attract international capital. To qualify, you’ll need to invest €280 000 or more.
And all you need to do to maintain this type of residency is to stay in Portugal for at least seven days per year. And after five years, you’ll become eligible for Portuguese citizenship.
Mortgages for retirees
Retirees can get a mortgage in Portugal, provided they have sufficient and regular pension income that will remain consistent for the mortgage’s duration. Of course, they must also adhere to the other requirements applicable to all non-residents.
What you need for a mortgage in Portugal
You’ll need a lot of documents to get the process started, but don’t worry – we’ve compiled a list to make things a bit easier:
- A copy of your passport or identity document.
- Proof of your address. You could use a utility bill, for instance.
- Evidence of a good credit score from the UK. A bad credit score can put you in a poor position for mortgage loans, and even if you manage to get one despite your bad score, it will likely have a high deposit requirement and interest rates.
- 3-6 months of bank statements. These should ideally be from a Portuguese bank account.
- Proof of income. This you’d get from your payslips. Otherwise, you may have to offer your business bank statements if self-employed. You’ll also need profit & loss statements as well as your balance sheet.
- A reference letter from your employer stating that you are a permanent employee shows how much you earn and how long you’ve been there.
- Your tax returns from the previous year.
- A purchase commitment of the property you are planning on buying.
- And, if requested, you’ll need to get a bank reference letter.
A breakdown of mortgage fees
The fees you’ll have to pay will vary substantially from lender to lender. However, generally, your international mortgage broker will make you aware of a lot of the below fees:
- Legal fees
- Property tax
- Appraisal fees
- Mortgage administration
- Deed registration
- Stamp duty
- Commitment fee
- Registry fees for property deeds
- Tax office fees
This is by no means an exhaustive list; however, it’s a good outline of what kind of fees you should anticipate. This could prove quite expensive if your property is already high-end.
What is the Euribor?
The Euribor, or the Euro Interbank Offered Rate, is what Portugal bases their mortgage rate on. It’s based on whatever rate EU banks borrow funds from each other – essentially, it’s the index used for all housing loans in Europe.
Portuguese lenders will often use this rate within a margin, so make sure that you check what the current rates are.
Other Portuguese mortgages terms
When navigating the Portuguese mortgage environment, there are a couple of terms you should understand. Along with Euribor, you should also know the following:
- The acronym MTIC. This is the total you’ll have to pay for the credit, including interest and capital.
- The acronym TAEG is also essential to know. These are the compounding returns on interest-paying investments.
The mortgage process
The Portuguese mortgage process is lengthy, so patience is required. Don’t worry yourself, however, as we’ve taken out time to list the entire process to you step-by-step:
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The initial assessment
The bank will start by assessing your yearly income to determine how much you would be able to borrow. A mortgage broker will consider various lenders to do this.
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Application submission
You’ll need to complete a lengthy application form and provide all the relevant documents discussed earlier. You’ll also likely have to sign a promissory contract if you’re going through an estate agent.
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Offer and valuation
After bank approval, you’ll receive a formal offer. Take the time to review this in detail. The bank will arrange a property valuation after this; ideally, it should be about the purchase price.
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Signing the deed
After making payment, paying fees and taxes and signing the deed in front of a notary, you will then be considered the property owner.
Types of mortgages in Portugal
Generally, mortgages in Portugal are taken over 25 to 30 years. With variable mortgage rates beginning at around 3.3% and fixed rates starting at 4.1% per year, generally with LTV rates of about 70%.
Contact us for help with your mortgage
Are you feeling overwhelmed about getting a mortgage in Portugal? Worry no more. Our mortgage professionals are here to help. You can contact us at 0808 301 9509 or fill out this contact us form to get a quote and mortgage advice from one of our expert advisors.
FAQs
Is it hard to get a mortgage in Portugal?
The country supports foreign investment, so it’s not very difficult to get a mortgage in Portugal. The main problem is just being able to pass the initial process and proving your eligibility.
How much deposit do you need for a mortgage in Portugal?
If you want to buy a commercial property, you’ll end up paying a deposit of about 50%. Whereas if you’re paying for a buy-to-let property, it’ll be around 40%. But, for traditional residential homes, you can expect to pay an average 20-30% deposit.
How long is a mortgage in Portugal?
Mortgages tend to be for around 30 years in Portugal but can vary. If you can pay your mortgage off in a third of the time, then you’ll have no problem finding mortgage deals that suit your preferences. Bear in mind, however, that attempting to pay extra on a mortgage after a certain limit can incur specific penalties.
What are the current mortgages in Portugal?
Portugal primarily has principal plus interest mortgages. You can opt for a fixed-rate mortgage of this kind, which fixes your mortgage rate for a while until you’ve either paid it off or have to renew it. Alternatively, you could choose a variable-rate mortgage, which stays in line with the prime rate.
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