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A guide to Portuguese mortgages and an introduction to Portugal’s leading independent broker      

Mortgages in Portugal - the basics

How much can I borrow?

The percentage of the property cost that is mortgaged is known as the Loan-to-Value (LTV) percentage. It’s based on the lower of the valuation and purchase price. For non-residents (who don’t pay taxes in Portugal) the maximum LTV is 60-70%% but depends on property price and financial profile of the buyer. For fiscal taxpayers the maximum is generally 85% but can be up to 90% if the property is valued significantly higher than the purchase price.

Can I afford it?

In terms of what you can borrow, the banks consider your Debt-to-Income ratio (DTI). They will require that approximately one-third of your net monthly income covers your existing debts including any rent you might pay plus the new Portuguese mortgage. Additionally, banks check your income against your family composition; household size and the number of applicants (i.e. single or joint application) are relevant factors for the approval of a loan in Portugal.

What other costs must I pay?

Fees and taxes relating to the property purchase and the mortgage set-up are generally 7-12% of the property price, depending on the region of Portugal. The buyer generally must prove they have these funds before the mortgage is agreed.

Will I be approved?

It’s advisable to get a mortgage approved in principle before starting the purchase process. This will confirm the upper limit of the price range in which you search and can put you in a stronger position when negotiating the property price; the vendor will know you are serious and can move quickly.

What type of mortgage? Fixed or Variable?

Portuguese banks offer a mortgage based on the European base rate the Euribor then add their bank spread (e.g. Euribor plus 1.5%). The percentage added to the Euribor depends on various factors, mainly the LTV, the income/debt profile of the client and the term of the mortgage. The monthly payments on a variable rate mortgage will go up or down according to movements in the Euribor. Fixed-rate mortgages are also available for the whole term. These usually have a higher spread, depending on market factors and the length of the mortgage, but with the certainty that repayments won’t change. Mixed rates are also available where the client pays a fixed rate for, say, 5 years and then a variable rate thereafter. Terms up to 40 years are possible.

Buy-to-Let? Interest Only?

Currently these types of mortgages that are common in the UK and other countries are not yet offered by the Portuguese banks. If you plan to rent out your new Portuguese property, potential rental income won’t be considered in your DTI calculation.

How to apply for a mortgage?

While it is possible to walk into a Portuguese bank branch and apply for a mortgage, you are likely to get a better deal by applying via a licenced broker. They will usually have access to better deals than are on offer in the high street and will know which banks are best suited to a buyer’s financial profile. They can help with presenting the financial documents required and are permitted to keep the buyer updated throughout the purchase process.

Which broker to use?

Mortgage Direct has been operating in Portugal since 2015 (having originally been established in 2006 in Spain). Since then, they have cemented their place as the leading independent broker in Portugal. They have achieved the Bank of Portugal’s official licence and they offer a premium broking service to clients of all nationalities and secure the best possible deals.

Divine Home has chosen to collaborate with Mortgage Direct over other brokers/intermediaries for the following reasons:

  • Qualified, licenced advisers
  • native English, Portuguese and Dutch-speaking brokers some of whom can also communicate in Spanish, and German
  • work with all lenders offering finance for Portugal
  • exclusive deals
  • mortgage quotes within 24-48 hours
  • no obligation advice delivered in a professional and friendly manner

If you wish to find out more about getting finance in Portugal, Mortgage Direct is available to discuss your options with you and to provide a no obligation mortgage quote. Click here to request a quote. 

They are completely independent and have a wealth of experience in a market where contacts are everything and premium service is key.