If you are planning to move to Portugal, you have probably thought about applying for a mortgage to buy a property in Portugal.
Today, there are more ways than ever to get a mortgage. It’s not just about going to your local bank branch and filling out an application. Home buyers can use all kinds of new strategies to get their hands on the keys to their perfect home.
Foreign buyers often have the necessary capital to buy a house without recourse to home loans. Often when they have to resort to the financing they prefer to take out a loan in their country of origin.
Mortgages for buying property as a non-resident differ in Portugal when compared with many other countries. They are also very different depending on whether you’re arranging one through a broker or a bank. You need to be aware of the potential implications of fixed-rate and variable-rate mortgages too.
This article explains mortgages when:
- buying property in Portugal as a non-resident
- the loan arrangements are available to non-residents
- and what to consider before you sign financial terms.
So how does mortgage credit work for foreigners in Portugal?
Does nationality influence mortgage loan conditions for foreigners in Portugal?
Generally , mortgage conditions factor:
- The client’s economic profile
- The characteristics of the property
- Financing policy of the credit institution
That said, nationality can also influence the loan conditions. However, this is more due to the fact that foreign citizens’ credit profiles can be considered higher risks, compared to local citizens.
On the other hand, the banking sector is also under strong regulatory pressure to control money laundering. Therefore it applies particularly stringent measures to ensure that the investments and operations of its foreign clients are in compliance with the law. There are strict rules and requirements for things like Know Your Customer or KYC.
Home credit conditions for foreigners in Portugal
Home loans for foreigners are similar to those granted to nationals, although they may be subject to more demanding conditions.
To start with, not all credit institutions approve loans for non-residents.
In other cases, loans are subject to certain limits and conditions, which relate mainly to:
- The maximum credit amount.
- The percentage of financing versus the guarantee
- The maximum term
The main reasons for these differences are related to the greater difficulty in dealing with an eventual breach of contract by these clients.
In other words, in the event of non-payment, it is more difficult to take effective legal action, especially in the case of non-resident foreigners.
Therefore the property to be financed is the main guarantee for this type of loan. So, the bank needs to reduce its risk and exposure.
Loan Lengths when buying property in Portugal
There may also be small differences in some aspects of lending and risk analysis. For example, those related to the documentation required for the loan application. Regarding financial conditions, interest rates and commissions are not very different for domestic and foreign customers.
The maximum loan periods may be slightly shorter than those allowed for national citizens. For most financial institutions, they may go up to 30 years.
In terms of financing solutions, both variable rates and fixed-rate options are available to non-residents. The variable rate is based on the Euribor rate.
This last option guarantees that the monthly instalments to be paid remain constant throughout a certain period of time or even during the whole duration of the loan.
In terms of debt, the requirements for non-residents generally imply a limit of 30% to 35% of the household’s monthly income.
So, the amount resulting from the sum of the instalments with the mortgage for foreigners and the remaining charges with other credits and responsibilities should not exceed this percentage of the monthly family income.
The idea is that the debt is manageable and allows the person to support themselves comfortably without defaulting on the debt.
Percentage of financing when buying Portuguese Property
Furthermore, the following must be consider when financing foreign home loans:
Generally, real estate loans in Portugal have limits on the percentage of the purchase that can be financed. This is equivalent to around 80% or 90% of the property’s purchase price, depending on the customer profile.
For a second home and home loans for foreigners, the maximum financing value is usually 60% to 70% of the purchase price due to their perceived higher risk. So, a buyer might need 30% and 40% of their own capital when purchasing the property.
Most credit institutions follow these same limits unless it is considered that the client’s credit profile represents a very high risk. Then the available financing amount is reduced.
Now that you know pretty much everything about mortgages in Portugal, you can apply for one with confidence. However, if you have questions about the property purchase process or about taxes and costs of the process of purchasing a property, then read Part I and Part II of the series covering How Influencers Can Buy Portuguese Property.
At Lexidy we have helped many investors over the years to complete their property purchases with a mortgage. Feel free to reach out to us so we can get the best deal for your property purchase in Portugal.