Can I Obtain a Buy-to-Let Mortgage in Portugal?

What is a buy-to-let mortgage in Portugal?

A buy-to-let mortgage is a way for an investor to borrow money for a property they want to rent out. Although Portugal doesn’t have a classic “buy-to-let” mortgage product, you can use standard residential mortgages (Crédito Habitação).

The Portuguese mortgage market is open to all citizens, residents, and non-residents. The mortgage process usually takes about four to eight weeks or longer for non-residents. You are expected to pay the money back in a maximum term of 25 to 40 years, depending on your residency and age.

To learn more about buy-to-let investments, visit our article: Buy-to-Let: An Overview.

If you are also unsure of which location is best for you, check out our guide: Best Locations in Portugal for Buy-to-Let.

How to choose the right mortgage for your investment?

For a first-time buyer, the words buy-to-let mortgage might be completely new. So, what does this term mean? Buy-to-let mortgages are specifically for people intending to buy property as an investment and to generate monthly rental income rather than for those planning to live on the property themselves. A residential mortgage will be more appropriate if you want to live on the property.

How do buy-to-let mortgages work?

A mortgage is a loan used to purchase (or maintain) a property or piece of land. Unlike the UK, Portugal does not offer specific buy-to-let mortgages where the amount you can borrow is primarily based on anticipated rental income. Instead, investors typically apply for a standard mortgage, similar to those used for primary residences.

Buy-to-let mortgages enable investors and landlords to buy properties in Portugal and rent them out to other individuals. Here is a basic overview of how a buy-to-let mortgage works:

Put down your deposit

The deposit required for buy-to-let mortgages is generally higher than for a residential mortgage. The amount is typically around 25 percent of the property’s value, but can sometimes be as high as 40 percent, while for residential mortgages, this is lower. In Portugal, the minimum deposit for buy-to-let mortgages for non-residents is around 20 to 40 percent.

Interest-only mortgage payments

It is common for borrowers to take out interest-only mortgages for their property, as it means repaying only the interest on the mortgage each month. The main reason is the lower monthly payments. However, by the end of the mortgage term, you still owe the original amount you borrowed and will be charged interest on the full balance each month until you have paid it back.

Pay back the full amount

At the end of the mortgage term, you must pay back the initial amount borrowed. To do so, investors often sell the investment property to pay off this debt. In Portugal, interest-only mortgages are typically only available for new constructions and are limited to a two-year term.

If an interest-only mortgage is not for you, you can opt for a repayment mortgage instead. This type of mortgage has higher monthly repayments, but you will have fully repaid your debt by the end of the mortgage term.

While most mortgages in Portugal are principal plus interest loans, banks offer three main types:

• Fixed-rate mortgages: The monthly payments stay the same for a set fixed period.
• Variable-rate mortgages: The interest rates can increase or decrease based on a market reference rate.
• Mixed-rate mortgages: These are currently one of the most popular mortgages in Portugal. They combine a fixed interest rate for an initial period, like five to ten years, followed by a variable rate for the remainder of the term.

How much will my buy-to-let mortgage cost?

The cost of your buy-to-let mortgage will depend on several factors, including:

The size of your deposit

The larger your deposit, the smaller the mortgage you will need to borrow. As mentioned, mortgage lenders in Portugal generally ask for a deposit of 30 percent from non-residents.

Interest rates

The amount you pay back each month will depend on the type of mortgage you take — fixed-rate, variable-rate, interest-only, or repayment.

Loan term

Most mortgages in Portugal are for 25 years, but it is possible to get terms of up to 30 years. The borrower’s age can affect the loan amount and terms, and your loan term will affect the size of your monthly payments.

Many Portuguese banks and mortgage providers have online mortgage calculators on their websites. Goldcrest also provides a mortgage calculator in Portugal. You can use it to get an idea of how much your buy-to-let mortgage will cost.

The mortgage calculator lets you estimate your monthly repayments based on the amount you borrow, the interest rate and fees of your mortgage deal, and your loan term. Ultimately, it can help you decide which buy-to-let mortgages you should consider.

How can I get the best deals on a buy-to-let mortgage?

Here are some helpful tips to ensure you get the best deal on your buy-to-let mortgage:

Compare a wider range of mortgage deals to find the cheapest rate

With various banks and lenders to choose from, you may be wondering where and how to find the best deals on a buy-to-let mortgage. Doing your research is the easiest way to compare deals and find the best interest rate. Visit lender websites to see what they offer, or speak to mortgage brokers who can compare deals for you. Having an experienced mortgage broker on your side can make buying property in Portugal as hassle-free as possible.

Keep an eye on your credit score

Maintaining a good credit score is generally a good habit. As your score can impact buy-to-let mortgage rates and the mortgage deal you receive, check your rating and take the necessary steps to improve it before applying for your mortgage.

Consider what type of mortgage is right for you

As we’ve discussed, different types of mortgages are available to borrowers. Research the pros and cons of each and decide what type of mortgage is best for your individual situation.

Be mindful of fees

Take note of any fees attached to your mortgage loan, such as an early repayment charge for leaving the deal before the end of your mortgage term. These fees, plus letting agent fees, can affect the overall cost, so make sure you know what they are.

What to consider before choosing a buy-to-let mortgage?

Different factors can affect your finances when applying for a mortgage. Two important factors to consider are tax implications and the loan term.

There are tax implications for buy-to-let investors, such as income tax on income from rental properties and Capital Gains Tax. In Portugal, income tax on rental income (Category F) for non-residents is generally charged at a flat rate of 28 percent on the net income.

However, if you plan to sell your buy-to-let property, the Capital Gains Tax (CGT) rules have changed. Non-residents selling real estate in Portugal are now taxed on 50 percent of the capital gain, which is then added to their worldwide income and taxed at the progressive income tax rates (up to 48 percent).

It is essential to consider your loan term when planning your mortgage repayments, and for this, you can use your rental income from the property to help meet these repayments. However, it’s important to note that you may not always have tenants in your property, meaning you may not always have a rental income.

For periods when you don’t have rental income, known as ‘void periods,’ you will need a financial backup to continue to meet your monthly mortgage repayments.

How to compare buy-to-let mortgages?

While there are no restrictions on non-EU residents wanting to buy property in Portugal, your status as a Portuguese resident or non-resident will affect the amount you can borrow. You should compare the different fees, mortgage types, Loan-to-Value (LTV), and the best interest rates banks offer.

Compare mortgages from different banks

Since you will need a Portuguese bank account for different property transactions, it’s a good idea to compare banks. Portugal has over 15 banks that offer different mortgage loans to purchase a property. These banks include Banco Best, Banco CTT, Bankinter, BBVA, and Santander. Each bank has different eligibility criteria, and you will need to assess the suitability of the loan offered to your individual situation.

Remember that you may encounter some language barriers during this process, so it is helpful to have a tax advisor or another professional who speaks both Portuguese and English to help you and offer expert advice.

Another advantage of legally residing in Portugal is the ability to apply for citizenship after five years of legal residency. This is one of the fastest naturalization timelines in Europe. The country is known for its affordable property prices and thriving real estate market.

Although it is not possible to buy property in Portugal and get citizenship, the housing market remains a popular choice for foreigners who want to gain residency in the country.

Goldcrest: How We Can Help You 

Goldcrest is a buyer’s agent that is based in Lisbon. We provide expert, impartial advice on real estate investments and how to buy property in Portugal. From scouting out the perfect property through to property acquisition, we have you covered throughout the process.

If you are looking to purchase property in Portugal, don’t hesitate to get in touch. Our team of skilled experts is available to solve all your real estate doubts, helping you with the property search and offering insightful expertise and strategic advice.

Why choose Goldcrest?

• Local knowledge: With offices located across Portugal, our presence nationwide allows us to assist you personally across the country.
• Independent service: As an independent buying agent, we do not represent any development or project. Our service is entirely tailored toward each individual client, providing you with everything you need to secure the perfect property at the best possible price. As an impartial advisor on the market, we work solely on behalf of our client and provide a service tailored to your needs and requirements.
• Streamlined process: Our real estate agents speak English and Portuguese, and our service is completely focused on providing you with a hassle-free buying experience, saving you time.
• Experienced team: Our expert real estate team has a vast local knowledge of the Portuguese property market. We have cutting-edge technology and metasearch tools at your disposal to provide full market coverage, ensuring the best investment choices and negotiated prices.
• Network of partners: We have a close network of partners, including lawyers, property management services, builders, architects, designers, and landscape gardeners, again saving you time and hassle by providing you with trusted experts in their field of work.