Mortgages in Portugal

The application for a Portuguese mortgage need not be a daunting task. Portuguese banks employ staff who are fluent in other languages and in most cases the mortgage application is translated into English or French. Buyers can either choose to appoint a mortgage broker to handle the application process for them or alternatively the buyer may approach the bank directly.

In preparation for your meeting with the bank or mortgage broker, be clear on the amount of finance needed. During a preliminary meeting the bank will need a copy of your passport, proof of address, tax returns from the previous financial year, a recent payslip, 3 months of bank statements and a list of your monthly outgoings. Should you be purchasing the property jointly with your partner, the bank will request the same from your partner. The bank will then prepare a mortgage proposal for you, confirming the amount and terms of the mortgage, subject to you producing original documents to prove your status and income.

The cost of the mortgages are generally subject to your status, in other words your ability to service the loan. The spread or interest charged by the bank will be measured by the risk factor. In Portugal, the interest rate charged is generally Euribor plus the spread charged by banks, which tends to be from 3-5%. Mortgage brokers may often approach two or three Portuguese banks in an attempt to secure the most competitive rate for their clients.
Portuguese banks currently offer foreigners mortgages, with a Loan to Value (LTV) of from 60-70%.

Portuguese banks also offer construction mortgages for  New Build Properties. In other words construction in which the buyer has secured a building contract which defines clearly the New Build cost or complete cost of the building contract, with a licensed Portuguese building contractor. This works well for investors who wish to own a home, custom-built to their unique needs and desires. Furthermore owners are secure in the knowledge that the bank will accompany the construction progress, only making payment to the building contractor in arrears, for work completed.

Portuguese banks will generally use the annual Euribor as the base rate plus a percentage spread, often quoted as “Euribor plus”.
The spread charged by the bank can often be negotiated together with a package of other products sold by the bank. These products may include a bank account, term deposits, credit card, householders insurance, life insurance etc. The mortgage rate quoted by the bank is generally variable in other words it will move with the Euribor rate, although some Portuguese banks can offer a fixed-rate loan as an alternative.

The term of the mortgage is normally linked to the age of the applicant ending at the maximum age of 75.

Portuguese banks will consider in the application process, the applicants ability to service the mortgage to the full term. To establish the affordability of the loan, the bank will apply a simple outgoings-to-income calculation. This means that the bank will take the applicant’s total monthly income and subtract from it the monthly outgoings including the new mortgage payment. The total monthly outgoings should never exceed 30-35% of the net monthly income. This is a very simplified description of how the bank reaches its decision, always consult the bank or mortgage broker for a more accurate assessment.

The application process begins with an initial approach to the bank or mortgage broker for a no-obligation estimate or preliminary analyses, which is often done at branch level. Remember to take along a copy of your documentation ready for the banker or mortgage broker to analyse.

Should you choose to proceed with the application there is normally a charge to prepare a formal quote, these charges are often discounted by the bank should the loan be completed. Assuming that the mortgage application is successful the bank will then present the applicant with a formal quote setting out the loan value and loan conditions.

Should the applicant accept the loan offer, the next step is normally to open a bank account at a branch near the property. Applicants are expected to make a deposit in the account that will cover the short term loan application costs.

The bank will then instruct a valuator to prepare a valuation report for the property or project. There is normally a valuation fee charged to the applicant at this point, on receipt of the valuator’s report the bank will begin the completion process.

This formality is attended to directly between the bank and the client’s solicitor in preparation for the deed. The process is fairly fluid with little intervention needed by the buyer. The three parties or their representatives will agree on a mutually convenient date, time and notary office to complete the sale. Present at the deed will be the buyer or his legal representative with proof that the IMT* has been paid, the bank representative with cheque in hand, the seller and the Notary to officiate the transaction.

*NOTE: IMT – Imposto Municipal sobre a Transmissão Onerosa de Imóveis, Property Transfer Tax.