How to get a Portuguese mortgage as a British expat

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Each year, hundreds of Brits flock to Portugal, particularly to the Algarve, in search a sunnier life. Many buy properties outright. Others use mortgages to finance their real estate.

In this article, we’ll go into the minutiae of the Portuguese lending market and the best way to go about getting a mortgage in Portugal.

If you’re planning to take out a mortgage to help finance your Algarve property, you’ll want to get started as soon as possible. It’s not that much more complicated than elsewhere in Europe, but the earlier you get started the better chance you’ve got of getting a great rate, and of making sure everything’s completed in time.

A brief word about Brexit
As it currently stands, the freedom Brits have of moving to Portugal and getting a mortgage isn’t entirely clear. One potential solution could be the much talked about Golden Visa. The Golden Visa essentially provides non-EU citizens with residency permits, given that they invest a certain amount in the country.

That said, it’s likely the Golden Visa won’t permit non-EU citizens for residency in the more densely populated areas of Portugal, such as Lisbon and Porto, and indeed, some areas of the Algarve.

But don’t let that get you down. Even without the Golden Visa, Brits will likely still be welcomed in Portugal, in a similar way as they are in Spain.
Bruce Hawker, founder and publisher of the Essential Algarve magazine, has posited that the ‘Portuguese government will make special concessions to make it easier to take up residency here for Brits than for other non-European nationals.’

The Lending Market
Let’s get back to mortgages. Despite an uncertain housing market and the economic volatility surrounding much of the Eurozone, Portuguese lenders are still happy lend to suitable individuals, even those that come from elsewhere. Different situations apply for residents and non-residents:

Typically, for local residents, banks will lend for 50 years. For non-residents, mortgage terms typically last up to 30 years. The other thing you’ll need to take into account is the maximum age upon maturity, which is usually between 70 and 80 years old, depending on the borrower.

How much deposit will I need?

It’s usually necessary to have 15-20% of the property’s purchase price to secure a mortgage, though as mentioned earlier, in the case of off-plan properties this may be lower.

Do I get a fixed or variable rate?
Both types of mortgages are available, depending on your circumstances. In Portugal, variable rates are usually linked to either the three or six-month Euribor rate. This is set by a panel of European banks each day and is typically used as an indicator of the rate that European banks will lend to each other.

The bank will then increase this margin accordingly, and that’s the rate that your mortgage will be set at.

As with British fixed rate mortgages, fixed rate mortgages can protect you from movements in the European base rate. However, the fixed rate will expire at some point and it will convert automatically into a variable rate mortgage.

Due to the decline of the property market in Portugal, interest rate only loans are very rare. Typically, lenders will only offer loans on which you repay both the capital and interest.

What are the lending criteria?
There are two main things mortgage lenders will look at in Portugal:

Your financial position. You’ll need to provide comprehensive proof of all income, including salary, dividends, investments and pensions as well as any rental income. You’ll also need to provide information about any debts and provide proof of employment /income.

The property itself. As part of the process, your lender will commission their own independent engineer to value the property to ensure the right price for the agreement.

Getting the right insurance
If you’re planning to secure a mortgage in Portugal, you’ll usually be expected to hold both home and life insurance. There are some exceptions but having both kinds of insurance in place will usually work in your favour.

Finding the right foreign exchange broker
So, that’s how to go about getting a mortgage in Portugal. Now the question is how to settle the mortgage payments.

If you’re paying for a Portuguese mortgage with money that is residing in the UK, you’ll know that you’ll need to exchange pounds into euros. You’ll also know that this comes with complications. For one, the GBP/EUR exchange rate is always changing.

This means that the value of your pounds in relation to euros can go up and down from month to month. This essentially means it could cost you more to settle your mortgage payments if the exchange rates go against your favour.

At Privalgo, we’ve helped thousands of expats avoid these risks. If you’re based in the UK, our forward contracts allow you to lock in a favourable exchange for up to two years. This means that no matter what happens in the world, wherever the exchange rates may go, your rate stays stable.

Not only can this protect you financially, but it also provides a peace of mind. No more nervously watching the headlines, wondering how much your mortgage will cost you next month.

Privalgo is a specialist foreign exchange company. Through leading exchange rates, innovative tech and an unrivalled personal service, we help British expats save money, time and exchange on their currency exchange.