Updated: May 16, 2024

 

So, you’re looking to buy property in Portugal, or are you at least exploring this as a viable option? The real estate market in the country, particularly in the capital city of Lisbon, has been moving from strength to strength in recent years. Buying your dream home or finding a perfect investment property to rent out can be exciting but you may be concerned about financing options. In this article, we’ll look at how to get a mortgage in Portugal as a foreigner.

You might find the mortgage application process daunting, but you’ll be pleased to know that it is a fairly straightforward process to take out a mortgage in Portugal. Even better, you’re not likely to face too many unmanageable difficulties during the process, and there are no restrictions in purchasing property here as an international buyer.

This article covers how to get a mortgage in Portugal and what to look out for when applying for a mortgage. We aim to equip you with everything you need to know about financing your property in Portugal and mortgages in Portugal for non-residents – from property and mortgage deeds to property tax.

Should you buy property in Portugal?

how-to-get-a-mortgage-in-portugal

Before wondering which mortgage is right for you or how to get a mortgage in Portugal, first consider whether Portugal real estate investments here are the right option for you. What does the real estate market offer? Is commercial or residential real estate more suitable? And is Portugal the right place for you?

Portugal is an excellent country to invest in, do business in, or live in. This Western European country is blessed with a high quality of life, a low cost of living, and sublime weather. With an excellent healthcare and education system, friendly locals, a stable economy, and a vibrant culture, Portugal has lots to offer. Whether you are moving with a family, retiring, looking for an opportunity to generate rental income, or simply looking for a lovely Mediterranean corner of the world to call home, then yes, Portugal is likely a great option to consider.

Property prices

Buying a property in Portugal is affordable when compared with other Western European countries. The housing market has moved from strength to strength in recent years and is an attractive market for both foreign investors and homebuyers.

In the third quarter of 2023, the average asking price for a house in the Lisbon Metropolitan, property prices stood at €4,061 per square meter and €6,009 per square meter in Lisbon city center. House prices will vary, however, depending on the type of property you are looking to purchase. L be more expensive.

Compared with other Western European countries, you should also find prices to generally be quite reasonable. Note that popular areas, such as Lisbon and the Algarve, will be more expensive than other parts of the country. If you are looking to buy and then generate rental income, then this can also be a lucrative investment.

Also, it’s worth being aware that the purchase price can be higher or lower than the asking price. This difference between the purchase price and sales price is because sellers often look to sell their properties by a set date and are often constrained by other variables. It is also worth considering that, as these are averages, the prices can also be more expensive than this.

At present, Portugal’s highly skilled workforce, booming tourism industry, world-class infrastructure, business-friendly environment, and easy access to markets are among several factors that have contributed to a continuous and steady flow of investments into different economic sectors over the past few years.

Can foreign buyers get a mortgage in Portugal?

Foreign buyers can get a mortgage in Portugal. Whether you are a permanent resident, an expat, or investing in property from abroad, you are most likely to be offered a mortgage by a Portuguese lender if you have a good credit score and history, as well as a reliable income through stable employment, passive investment income, or business ownership.

Benefits of Getting a Mortgage in Portugal

Portugal prides itself on the way it welcomes visitors and investors, and you’ll be able to easily find many options to secure a mortgage for property in Portugal from various local banks with the help of an independent mortgage broker. All the conditions for getting a mortgage loan are in place to achieve your dream of owning a property in Portugal.

A mortgage is the most common way to finance your property purchase in Portugal. Some of the benefits of taking out a mortgage in Portugal are:

  • There is increased interest from Portuguese mortgage lenders in assisting foreigners with lending solutions.
  • The Portuguese mortgage lender will carry out legal checks.
  • The lender will arrange for a valuation to take place.
  • There are low mortgage rates in Portugal.
  • Mortgages in Portugal for residents and foreigners are available in Portugal.
  • In Portugal, properties purchased on credit can be rented out without restrictions, therefore reducing risks.

Before accepting a formal mortgage offer, it’s important to ensure that the property you are purchasing has gone through the proper checks. To do this, you may want to consider seeking the services of a Portugal real estate lawyer. You will require legal aid at various points throughout the process of purchasing a home in Portugal, so it can be helpful to have a reliable lawyer on your team from the start, particularly as they will be able to navigate the Portuguese language barrier if you are not familiar with Portuguese.

The services a real estate lawyer can provide include, but are not limited to:

  • Overseeing the purchasing transaction from start to finish
  • Remote handling of bureaucratic procedures
  • Checking whether any outstanding debts are attached to the property
  • Checking who the legal owner(s) is/are and that they have the right to sell the property
  • Checking the construction history of the property (property valuation)
  • Drawing up contracts and documents, such as the reservation agreement
  • Review the purchase and sale agreement and advise you on its legal consequences and obligations
  • Requesting necessary legal documents for the property
  • Providing Portuguese real estate legal advice about everything from mortgage repayments to having contract life insurance

Once you are confident that your chosen property is right for you, you can move on to finding a mortgage. There are different mortgage options to choose from in Portugal, such as a fixed-rate mortgage or variable-rate mortgage. So, let’s have a more detailed look at what you need to know about mortgages in Portugal.

Useful Terminology and Acronyms

How-to-get-a-mortgage-in-Portugal-pngHere are some useful terms and acronyms so that you are well-versed in understanding the basics of mortgages in Portugal and taxes when buying property in Portugal.

TAN – Taxa Anual Nominal, the TAN is commonly known in English as the Annual Percentage Rate (APR). The variable TAN is the sum of the spread and the indexing rate, which is usually Euribor for 12 months.

Euribor – The Euro Interbank Offered Rate is a daily reference rate based on the average interest rates at which Eurozone banks offer to lend to other banks in the euro wholesale money market (also known as the interbank market). You can see the 12-month Euribor Rate online.

TAEG – Taxa Annual de Encargos Efetiva Global is the sum of TAN and other costs from the lender, such as origination fees, required insurance, and so on. This rate is used to compare similar mortgage loan options from different banks effectively.

What types of mortgages are available in Portugal?

There are a few different mortgage loan options to choose from if you need to finance your property purchase in Portugal.

Fixed-rate mortgage

Fixed-rate mortgages allow property owners to pay a constant rate for a certain period. These mortgages are offered for anywhere between 3 and 30 years, with banks charging a significant premium for a fixed-rate mortgage. The advantage is that borrowers are generally protected against fluctuations in Euribor rates.

According to January 2024 reports and forecasts by economists, fixed-rate mortgages will be available at 3.5 percent (TAEG) for up to five years, based on loan-to-value (LTV) ratios of up to 70 percent. It is important to note that while LTV ratios can go up to 90 percent, non-fiscal residents are limited by regulation of up to 75 percent.

Variable-rate mortgage

Variable-rate mortgages depend on the mortgage spread – a fixed percentage of interest – offered by the bank you borrow from. Currently, the mortgage spread is sitting around 0.85 percent for the majority of financial institutions.

A variable-rate mortgage in Portugal for non-residents typically reaches up to 70 percent, so customers should budget to have around 30 percent of the purchase price within easy reach, plus the cost of taxes and fees on top of this. The monthly payments on a variable-rate mortgage fluctuate over time depending on the indexer (Euribor) and your variable-rate mortgage period which can be between three, six, and 12 months. Over the repayment period, the monthly payments on variable-rate mortgages are usually revised. Also, you will be charged 0.5 percent on the repaid capital if you decide on early repayment.

Mortgages in Portugal for retirees

As a retiree in Portugal, you can get a mortgage, provided you have a regular pension income. Note that while banks do offer mortgages to retirees, most banks will not offer a mortgage to individuals who are over 70 years old. Some, however, will extend this limit to 80.

Mortgages in Portugal for businesses

Suppose the property you intend to buy is for commercial use. In that case, the maximum mortgage is usually 50 percent of the purchase price (or, if lower, the valuation is stated in the valuation report).

How much do I need to deposit?

  • Non-residents should know that the minimum deposit is usually about 30 percent of the purchase price.
  • Financing institutions provide between 60 and 70 percent of the valuation price for non-residents.

How do mortgages in Portugal work?

The application process begins with an initial approach to the bank or mortgage broker. Having an experienced mortgage expert on your side will make the process of securing the best deal for your situation much simpler. A no-obligation estimate, or initial assessment follows.

A six-step process is then laid out, from getting a quote to signing the property deeds and mortgage deeds:

  1. Mortgage quote
  2. Application forms delivery
  3. Mortgage offer
  4. Valuation report
  5. Completion arrangements
  6. Payment (all the associated mortgage-related fees, minimum deposit, tax office fees, and taxes) and signing (property deeds and mortgage deeds)

Mortgage-related fees can include:

  • Property and mortgage deeds registration
  • Mortgage arrangement and administration
  • Non-refundable commitment fee
  • Survey and appraisal
  • Legal fees

Work out the mortgage rates

mortgageThe cost of the mortgage loan depends on the applicant’s financial status. The mortgage lender will measure your ability to maintain the loan. The spread or interest loans that the bank charges are a measure of the bank’s valuation of risk.

In Portugal, the interest rate charged is generally Euribor, plus the spread. This adds to the spread charged by the banks, which is usually three to five percent.

Mortgage agents will often approach various banks in Portugal. The goal is to secure the most competitive rates for you. Most banks in Portugal offer foreigners mortgages with a Loan-to-Value ratio (LTV) of 60 to 70 percent.

How to pick the right Portuguese bank for your mortgage

Many people will focus on the pricing of a mortgage facility. Yet, there are other important factors to consider:

  • Some banks have a mandatory life insurance obligation that adds to the cost of a mortgage. It is usually best to avoid it for many non-residents.
  • Some mortgage lenders may have more competitive interest rates but a cap on how much you can borrow.
  • Some banks may offer variable-rate mortgages only, not fixed-rate products.
  • Different banks will have different requirements when analyzing how much you can pay for a given loan amount.
  • Some banks will emphasize certain types of income streams more than others.
  • Some banks may not consider renting.
  • Some banks will respond differently to income value.

This illustrates that some profiles are better suited than others for certain banks when it comes to getting formal mortgage approval.

The important factor is to make sure that your information is carefully examined and that, whenever possible, you are given several suggestions that may work for you before deciding on the one to go for.

Documents you must provide to get a Portuguese mortgage

If you are going to apply for a mortgage in Portugal, you have to submit the following documents for your initial assessment:

  • Copy of passport
  • Portuguese tax number (also called a NIF number)
  • Proof of income
  • Bank statements
  • A recent utility bill
  • Recent mortgage statements
  • Proof of any savings or investment income accounts
  • Bank reference letters
  • Property details – buying commitment or sales contract

These documents vary depending on your employment status. You should include the length of time that you have been in the company/employed/self-employed and demonstrate your gross annual salary.

If employed:

  • The previous year’s income tax returns
  • Salary income, as shown through the past three months’ pay slips
  • Reference letter from employer

If self-employed (hold a 20 percent or more share in a limited company):

  • Last year’s income tax return
  • Last three months of business bank statements
  • Three years of company profit & loss and balance sheet

Other income:

  • Confirmation of pension income for the last three months
  • Copy of tenancy agreement for rental properties
  • The last three months of bank statements showing rent received
  • Copy of investment certificates

Please note that the bank may request more documents.

Practical Information to Know about Mortgages in Portugal

This section will cover the costs associated with mortgages in Portugal, the application process, and the lending criteria for a mortgage in Portugal.

Cost and fees for mortgages in Portugal

The costs and fees for Portugal mortgages are as follows:

  • €290 application fixed fee
  • €280 fixed valuation fee
  • Stamp Duty Tax (IMI) 0.8 percent of the property price
  • €1,200 notary, registry, and tax office fees for mortgage deeds
  • Property tax/property purchase tax (IMT) ranges between 2 percent and 8 percent

How to apply for a mortgage

The application process for a mortgage in Portugal begins by approaching the bank or mortgage agent. They will proceed to supply you with a no-obligation estimate or preliminary analysis. This is often done at the branch level. It is important to have a documentation copy ready for the banker or mortgage agent to analyze and give you feedback.

What is the maximum loan-to-value for Portuguese mortgages?

The maximum loan-to-value for Portuguese mortgages for non-residents is between 70 percent and 80 percent of the property’s purchase price.

What are the lending criteria for a mortgage in Portugal?

Portuguese banks will consider in the application process the applicant’s ability to pay the mortgage to the full term. To establish the affordability of the loan, the bank will apply a simple outgoings-to-income calculation.

The monthly outgoings, including the new mortgage payment, will be subtracted from the applicant’s total monthly income. The total monthly outgoings should never exceed 30 to 35 percent of the net monthly income, meaning that your monthly debt payments and living expenses should not exceed 35 percent of your monthly income after deductions. This is a very simplified description of how the bank reaches its decision. Always consult the bank or your agent for a more accurate assessment.

What is the mortgage in Portugal calculator?

Portuguese lenders, like many banks and credit unions offering mortgage products in Portugal, will have their own mortgage calculator on their websites. These mortgage calculators calculate an estimated monthly mortgage repayment on Portugal mortgage rates for foreigners. Some Portuguese lenders may also offer first-time home buyer programs or incentives. Based on the property value, consider all the financial aspects related to the mortgage rates in Portugal in 2024, including your net borrowing, mortgage insurance, property tax, and the list of financial considerations pertaining to the mortgage application process below:

  • Your credit score: An analysis of your credit files used to determine your creditworthiness
  • Debt to income ratio: Your monthly debt payments and dividing it by your gross monthly income
  • Loan to value ratio (LTV): The ratio of the loan amount compared to the property value
  • Amortization Schedule: The breakdown of mortgage payments over time, including interest rate
  • Insurance: Property insurance and mortgage life insurance requirements for securing a mortgage.
  • Early repayment charges: You will be charged a fee, generally 0.5 percent of the property value, if the mortgage is paid off early considering taxes. You will also be taxed on repaid capital should you decide to sell the property.

Key Takeaways: Getting a Mortgage in Portugal

From the intricacies of securing home loans or a mortgage as a foreigner buying property to understanding the terms, interest rate, and impact on your financial position, navigating applying for mortgages in Portugal requires attention to detail and invaluable local knowledge and support. Here, we summarize the key takeaways of applying for a mortgage for property in Portugal, including considerations to keep in mind that will make your venture into the Portuguese real estate market a seamless and rewarding experience.

The costs of a mortgage in Portugal

Securing a mortgage in Portugal involves various costs. Expect to pay around 1 to 2 percent of the loan amount in arrangement fees, coupled with administration fees, valuation fees, and insurance costs. Additionally, property acquisition entails taxes like IMT (ranging from 2 percent to 8 percent), stamp duty tax (0.8 percent), notary, registry, and legal fees.

Applying for a mortgage in Portugal as a foreigner

Foreigners investing in Portuguese property will be required to meet specific conditions, which typically entail a larger initial payment, often around 30 to 50 percent of the property’s price, compared to Portuguese residents.

How mortgages work in Portugal

Mortgages in Portugal usually feature fixed interest rates for the loan’s entirety, commonly set between 25 to 30 years. The base rate is Euribor, onto which banks add their margins.

Qualifying mortgage requirements in Portugal

Eligibility for a mortgage in Portugal requires a solid credit history, stable income, and the ability to manage monthly payments. Lending criteria consider financial standings encompassing income, debts, employment history, and property valuation.

Mortgage rates for foreigners in Portugal

Foreigners might face higher mortgage rates due to perceived risk, but competitive rates are available from select lenders.

Compare banks for the best mortgage rate

To secure the best mortgage rate, it’s crucial to compare rates from various lenders. Institutions like BBVA, Santander, Banco Best, Bankinter, and Banco CTT offer diverse mortgage loans.

Bank

Variable Interest Rates

BBVA

4.75 percent for the first 10 years, followed by a 1.29 percent 6-month Euribor

Santander

1.89 percent for the first 6 months, followed by 1.89 percent + Euribor from the 7th month onwards

Banco Best

5.73 percent, followed by 3.83 percent Euribor for 6 months and a spread of 1.9 percent

Bankinter

6.4 percent on a financing of €250,000 followed by 3.97 percent Euribor for 3 months with spread

Banco CTT

5.37 percent, followed by 3.97 percent Euribor for 3 months with a spread of 1.4 percent

The length period of mortgages in Portugal
The most common mortgage term in Portugal is 30 years, although flexibility exists for shorter or longer durations.

The down payment on a house in Portugal
The minimum down payment for foreigners is usually 30 percent of the purchase price, though some lenders may require up to 50 percent.

The qualifying age limit for a mortgage in Portugal
The minimum age limit is 18 to apply for a mortgage, however, there isn’t an official age limit. Borrowers above 70 might encounter hurdles in securing loans because non-resident mortgages typically span 25 to 30 years.

Goldcrest: We Can Help You Find Your Dream Property 

Goldcrest is a buyer’s agent that is based in Lisbon, Porto, and the Algarve. Equipped with local knowledge, exclusive networks, and international experience, we provide expert, impartial advice on real estate investments and how to buy property in Lisbon, Portugal. From scouting out the perfect property through to property acquisition, we have you covered throughout the process. Our team of skilled experts is available to cater to all your real estate needs, offering insightful expertise and strategic advice. Book a complimentary call with us today.

Frequently Asked Questions about How to Get a Mortgage in Portugal

Portuguese banks offer mortgages to residents and non-residents. If you do not have a fiscal representative or a buyer’s agent, you can approach a major Portuguese financial institution – such as Santander, Novo Banco, BBVA, EuroBic, or Bankinter – directly.

The key benefit of taking out a Portuguese mortgage is that Portuguese mortgage lenders can offer valuable services and benefits that include, property valuation to take place, tailored interest rates, and favorable repayment terms.

In Portugal, the IMT, or property purchase tax, should be paid separately from the mortgage payments.

Since 2017, it has been possible to take out up to around 70 percent of the sale price as a loan as a foreigner. Portugal mortgages are usually given to people aged 65 and under, although certain banks extend this to 80 years. The mortgage process is simple and even encouraged by Portuguese institutions.

Yes, the Portuguese Government allows foreigners to take out a mortgage in Portugal. Many Portuguese banks offer mortgages in Portugal for non-residents, and it is best to speak with a Portuguese bank, mortgage broker, or real estate expert who can guide you in the right direction. Golden Visa applicants can even talk to them about taking out a mortgage for the Portugal Golden Visa.

You will be able to take out mortgage loans that are around 70 percent of the sales price. The process is generally very simple, and foreigners are encouraged to purchase property here. However, it is worth having an experienced mortgage broker who speaks Portuguese on your side to ensure that you get the best price and mortgage type depending on your needs.

Getting a Portuguese mortgage is very common, and you will be able to secure a mortgage regardless of whether you are a resident or are looking for mortgages in Portugal for non-residents. There are many banks offering mortgage loans in Portugal.

To apply for a mortgage in Portugal, you will need to have the following documents to hand:

  • Copy of passport
  • Portuguese tax resident number (NIF number)
  • Proof of income
  • Bank statements
  • Recent utility bills
  • Recent mortgage statements
  • Proof of any savings or investment accounts
  • Bank account reference letters
  • Property details – buying commitment or sales contract

You will also be required to show additional documents, which will depend on your employment status. If you are a retiree, you must be able to prove a regular pension income. Please note that the bank may request more documents in addition to proof of your pension income.

Portugal mortgage rates for foreigners depend on many different factors. These include the size of the down payment or loan-to-value ratio (LTV), the location of the property, whether you are in full-time employment or are self-employed, and the bank’s assessment of your risk as a borrower.

A variable rate mortgage will depend on the spread offered by the bank and will range between 0.9 percent and 1.5 percent in most institutions. This rate currently sits around 0.85 percent for most institutions. The monthly payment will fluctuate over time and will depend on Euribor rates.

For a Portugal fixed-rate mortgage, borrowers can pay a fixed rate for a certain period and will usually be guarded against fluctuations in the Euribor. Banks in Portugal will offer fixed rates from anywhere between three to 30 years and will charge a significant premium for this. To provide you with an example, there are fixed-rate mortgage options that are available at 3.9 percent (TAEG) for up to five years based on a loan-to-value ratio (LTV) of up to 70 percent.

At the beginning of the lending process, Portuguese mortgage lenders will conduct a debt-to-income ratio assessment. This assessment entails taking your monthly debt payments, such as loans and other mortgages, and dividing this by your gross monthly income. A debt-to-income ratio between 35 and 40 percent is usually most acceptable. If your application is approved, the lenders can then assist with the necessary legal checks for the property and arrange a valuation.