By: LINDA KENNY
Linda Kenny is Mortgage Manager and International Financial Planning Adviser with Blacktower FinancialManagement Group.
MUCH HAS been written in the UK press over the last few months about the sub-prime mortgage crisis in the United States and the subsequent effect on the UK banking industry and UK property prices.
In the Algarve, the slow-down in the non-resident property market appears to be less to do with the attitude of the Portuguese banks and more to do with concerns about UK property values and the poor performance of Sterling against the Euro – a drop of over 15 per cent from one year ago.
Many estate agents have reported sales slowing down to a trickle and while there are still prospective purchasers out there, it seems they are wary of committing themselves. This, of course, is understandable in the current economic climate, particularly if they are from the UK or Ireland where talk of recession, fall in property prices or the mortgage squeeze is in the press or on the news on an almost daily basis.
In Portugal, the lending banks have not been significantly affected by the sub-prime problems. Although this has not stopped a few from taking a noticeably more cautious approach – for example reducing the loan to value ratio or the number of ‘interest only’ years and some have increased the rates offered. However, for the majority of banks, it is very much ‘business as usual’ – even to the extent that they continue to introduce new products specifically aimed at the non-resident market.
If you have found your dream home in the Algarve and are considering financing the purchase with a loan, it is important to make sure you get the mortgage product which ticks all your boxes. The selection is better than ever and your mortgage consultant will be able to come up with the options best suited to you. This means not just finding the best rate but looking for the best mortgage product as a whole, ensuring it meets all your current and future requirements.
Euro vs Sterling
Another consideration is which currency to take your loan in. Do not assume you should have a euro mortgage just because your purchase has been agreed in euros. There are a number of lenders who will consider other major currencies.
Currently, euro loans are no longer the cheap alternative to a sterling loan. Indeed we have seen the euribor rate almost double over the last couple of years – to the point where the six month euribor rate is practically the same as the UK base rate. Given the current inflation figures in both the UK and the Euro zone, it appears that both rates could increase over the next few months. So give some consideration to where the funds are coming from to pay the monthly mortgage payments – will it be from income earned in your home country, rental income from the property or a combination of both?
At times of rising prices we tend to look at ways of saving money where possible. So if you already have a loan on your property, make sure you still have the one best suited to you. There can be significant monthly savings in changing to a better product. A number of lenders meet the cost of transferring an existing mortgage to them which means there is no cost to you – ask your mortgage consultant to come up with options which might suit you.
Recently there has been a noticeable rise in property owners releasing equity in their Portuguese properties – this is for a wide variety of purposes including repaying UK mortgages, purchasing additional properties, both here and in their home country and diversifying into other investments. Not all lenders will consider this type of loan but your consultant should be able to give you detailed information on what is possible.
The most popular mortgages continue to be those offering a number of initial years on an ‘interest only’ basis. This is particularly useful if you are building up the rental side or if your property is on a development which is not completely finished and so will not attract rentals for a few years. Interest only periods can be for three, five or 10 years – or even for the full term of the loan in some cases.
Fixed interest mortgages were once difficult to find and even if you could find one, the rate offered was likely to be unattractive. However that has changed significantly. Fixed interest loans are widely available for five, 10 or more years at competitive rates. A popular choice is to combine a five year interest only loan with a five year fixed rate.
Property sales might have slowed down, but there is still much to be positive about for a purchaser. There is a good selection of properties to choose from at very realistic prices, a good choice of lenders and competitive mortgage products. And, of course, the Algarve is as popular as ever with its fabulous beaches, excellent golf courses, lovely towns and villages and a lifestyle that many can only dream about.
In the current financial climate, it is more important than ever to use a fully qualified professional financial consultant who specialises in property finance and who is not tied to any bank or financial institution.
Professional consultants are constantly reviewing the mortgage products available and can guide you through the current Portuguese mortgage market, matching your requirements to the most appropriate lender – whether you are purchasing a property, releasing equity in your existing property or simply ensuring that your existing mortgage is still the one best suited to you.
Use your consultant to smooth the whole process from submitting a mortgage application all the way through to completion and, very importantly, to be available after completion for any further advice or help you might need.