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International Mortgages
Portuguese mortgages: A beginner’s guide
By Hazel Cottrell hazel@consumerchoices.co.ukDo you fancy buying a holiday home or investment property in Portugal? We explain the basics of getting a Portuguese mortgage… (Updated 24/9/09)
Portugal may be a small country, but it has a lot to offer. From the picturesque sandy beaches and expansive golf courses of the Algarve to its vibrant and historic capital Lisbon, it’s proven to be very attractive to Brits.
Whether you have already found your dream property in Portugal, or are just considering buying a property in the future, it’s likely you’ll have to get to grips with Portuguese mortgages.
In this guide we tell you what you need to know…
- What do I need to know about Portuguese mortgages?
- Will I be approved for a Portuguese mortgage?
- What types of mortgages are there in Portugal?
- What costs are involved with Portuguese mortgages?
- Our recommendation
What do I need to know about Portuguese mortgages?
While there are plenty of similarities between mortgages in the UK and mortgages in Portugal, there also are a few crucial differences.
Importantly, mortgages in Portugal are in euros and will be secured against your Portuguese property. Portuguese mortgages are full status, so you will be required to provide proof of your income and outgoings when making a mortgage application in Portugal.
The maximum loan-to-value ratio (LTV) for Portuguese mortgages is typically 80% and the mortgage term can be between 10 and 30 years, but loans must be repaid by the time you reach 80 years old.
Will I be approved for a Portuguese mortgage?
In order to be approved for a Portuguese mortgage, you will need to meet your lender’s eligibility criteria and prove you have the ability to repay the mortgage.
As a guideline, your existing outgoings and new mortgage repayments should not exceed 35% of your gross income. Mortgage, rent, personal loans and maintenance commitments are all considered as outgoings.
As well as your salary, a percentage of any rental or investment income you receive can be considered when looking at your income.
When applying for a Portuguese mortgage, you will be required to provide documents proving that you can afford the repayments. These are likely to include proof of identity and residence, proof of income and outgoings, bank statements and property details.
What types of mortgages are there in Portugal?
There are two types of mortgages available in Portugal – fixed rate mortgages and variable rate mortgages. Each has its own advantages and disadvantages and which will suit you better depends on your own personal circumstances, which you should discuss with your mortgage broker.
Basically, you can usually get a lower initial interest rate with a variable rate mortgage, but with a fixed-rate mortgage you have the security of fixed repayments and are protected from rate increases for a set period of time.
When taking out a mortgage in Portugal you will also need to choose a method of repaying your mortgage.
If you choose a repayment mortgage you will make monthly repayments for a set period of time, which will consist of the capital you borrowed and the interest on it. At the end of this period you will have paid for your property completely.
If you choose an interest-only mortgage, your monthly payments will only cover the interest. At the end of the mortgage term you will have to pay off the capital. If you are getting this type of mortgage you will need to be able to prove to the lender that you have an alternative repayment vehicle in place that will allow you to make this lump sum payment at the end of the loan.
How much does it cost to get a Portuguese mortgage?
It’s not just the monthly mortgage repayments that you need to look at to work out whether you can afford to buy. There are several additional costs that you need to take into account when working out how much it will cost you to buy your Portuguese property.
Costs you should consider include the following:
- Valuation fee
- Notary fee
- Bank’s arrangement fee
- Bank’s completion costs
- Mortgage registration tax
- Buildings insurance
- Mortgage broker’s fee
- Cost of setting up a Portuguese bank account from which to make your mortgage repayments.
Our recommendation
If you are thinking about buying a property in Portugal, you need to plan ahead and ensure you get professional advice. We would recommend that you use an international mortgage broker with established experience in the local market.
THINK CAREFULLY BEFORE SECURING ANY DEBTS AGAINST YOUR HOME.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP
REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.