Of course it’s great if you get a big lottery win or remortgage your UK home to be able to buy outright in Portugal. But most people buying here need to consider getting a mortgage in Portugal. So how easy is it to get a mortgage in Portugal? Let’s take a look shall we?
Benefits of Getting a Mortgage in Portugal
In many ways, there are benefits to this. Mortgage rates are extremely low in Portugal right now. There are also the added checks that a mortgage company will do that out your mind at ease about your property. If you buy outright you need to find someone to do these privately.
Income and Affordability
In the UK mortgages are predominantly calculated on a multiple of your income such as allowing you to borrow 3 or 4 X what you earn. In Portugal they will be concerned about affordability as well as income. This means that they will look into other expenses, loans and credit cards that you have to make sure that the monthly payment is going to be affordable. Since Covid-19 this is becoming an increasing extra measure that UK lenders have started to use as well. If you have a mortgage or financial commitments back in the UK then these will need to be taken into consideration.
Which type of Mortgage do you need?
It’s best to speak to a mortgage advisor in the Portugal market – there are many English speaking mortgage advisors along the Algarve. The important first thing to discuss is what type of mortgage you need and whether or not you have residency in Portugal. For example, if you are a Portuguese resident and want somewhere to live here in Portugal, then it would be a residency mortgage and you can get local rates with a Portuguese bank. However, if you are a UK buying a holiday home you need to declare whether you are renting it out and as a general rule this kind of mortgage will be a higher rate and require a higher deposit.
How much Deposit do I need and what are the rates like?
The good news is that if you are a Portuguese resident and you are looking for a home here to buy and live in then you can potentially get a mortgage on a good rate ( as low as 1.79% currently as of 2022) with a low initial deposit (10%). You can buy a property here in Portugal with as little as 10% deposit and often over a period of 30-40 years.
Like in the UK, you can choose interest only or repayment but most people in Portugal choose a repayment mortgage. That means that you are clearing money off the capital as well as the interest. Investors often go for interest only mortgages with the view to sell the property to clear the debt at the end of the term.
If you can get a good deal then even if you have a healthier deposit or can buy outright it makes sense to get the good and cheap mortgage to free up your capital for further investments, or even just keep some of it back for moving expenses such as furnishings.
A Foreigner investing in BTL Mortgage
If you are investing from abroad it is possible to buy in Portugal without being a resident – you will need a NIF number which is the fiscal number used here for everything in Portugal. If you require a buy to let mortgage as a foreign investor you need to decide whether you are going to go for a Portuguese bank or a bank in your home country.
You will probably find that you need a higher initial deposit such as 30-50% and that your rate is higher (possibly over 3%).
The Best way to get a Mortgage in Portugal
The best way to get a mortgage in Portugal is usually to approach the Portuguese bank that you bank with. So if you don’t have a bank account yet in Portugal then I suggest that you get one and start investing a few hundred Euros a month at least if you can allow it – this will build up your credit rating and after around a year your bank will consider lending to you for personal loans and mortgages.
I recommend ActivoBank as they speak English and it’s really easy to do everything online. I opened an account with them and maintained the account in good order for over a year – paying in on a monthly basis and using the Multibanco card in Portugal for groceries and personal expenses. After 6 months I was eligible for a loan and after 12 months I was eligible for a mortgage. If your pay doesn’t go into your Portuguese bank account (which it won’t if you are still living and working in UK) then you will need to prove your income.
What you will need to apply for a Mortgage in Portugal:
- NIF (fiscal number)
- Proof of address (copy of recent utility bill)
- Credit report
- Recent bank statements
- Recent pay slips
- Tax returns (UK and/or Portugal)
Banks and Mortgage advisors in Portugal
Some of the best banks to go to for mortgages in Portugal include:
- Millenium BCP
- Banco BPI