Pleasant weather, natural beauty, low cost of living (in comparison with other European countries) and security are only some of the reasons why more and more people want to buy a house in Portugal – Portuguese people and foreigners alike. However, just like anywhere else in the world, this decision must be well considered, because it requires investment, implies bureaucracy and some procedures. To make it easier for you, we have elaborated this complete guide on how to buy a property in Portugal.
How much does it cost to buy a property in Portugal?
In Portugal, property prices depend on many factors, such as:
- The location;
- The typology;
- The conservation status;
- And the services in the surrounding area.
According to the most recent data from the Portuguese National Institute of Statistics (published in October 2022), buying a property in Portugal costs, on average, 1.402 euros/m2.
Areas like Algarve (2.358 euros/m2 ) Lisbon Metropolitan Area (2.076 euros/m2 ) and Porto Metropolitan Area (1.576 euros/m2 ) turn out to be, according to the reference values per price per m2, the most expensive. In the interior of the country there are the cheapest properties, namely in the areas of Beira Baixa (617 euros/m2 ) Beiras e Serra da Estrela (597 euros/m2 ) and Alto Alentejo (500 euros/m2 ).
Buying a property in Portugal: what are the options?
If you intend to buy a property in Portugal, you have to remember that there are several types of properties that you should be aware of, namely:
- Flat — dwelling unit, inserted in a building with one or multiple spaces;
- Detached House or Villa — isolated house, which may have a garden, a patio or a yard. It usually has a wall around it with a frontal gate;
- Semi-detached house — house sharing at least one side with another building;
- Condominium — individual flats that share common areas and may include services, such as security, a gym, security or a swimming pool;
- Country House — classic rustic house, with large grounds, usually located in the countryside;
What do the terms used in advertisements to buy properties in Portugal mean?
If you want to buy a property in Portugal you will probably come across some terms more or less known by average consumers, for instance:
- Typology: it designates the number of rooms in the property, excluding the kitchen, the bathroom and the pantry. In an advertisement the typology appears as a “T” followed by a number. For example, “T1” means that a dwelling has one bedroom.
- Gross area per square metre: also known in Portugal as “área bruta privativa” [private gross area] is the habitable area of a property. It includes bedrooms, living room, kitchen, bathrooms, corridors and entrance hall. It excludes open verandas, yards, patios, garages or annexes.
Where can you find and buy a property in Portugal?
There are different ways to acquire a property in Portugal:
- Real estate portals – generally aggregate a wide range of professionals and individuals – ;
- Real estate companies – they include offers of each estate company or real estate mediation group –;
- Property developers – they generally present offers for brand new estates –;
- Social networks – some estate agents use their social networks to promote their services and properties –;
- Visit the real estate agencies in the neighbourhoods where you are looking for a property;
- Real estate fairs and exhibitions;
- “Vende-se” [for sale] signs;
- Real estate offers from banks ;
- Real estate investment funds and property auctions;
- Advertisements, classifieds, open houses and other real estate promotion events.
The decision to resort to real estate professionals can become especially advantageous if you are a foreigner or non-resident, because, besides these professionals can help you to select properties and find your ideal home, they also offer support in managing the whole purchase process. Moreover, they help you gather the necessary documents and clarify the legal aspects.
How do mortgage credits work in Portugal?
If you have found a property that meets your requirements, the first step in buying a property in Portugal is to make an offer to the seller. When an agreement has been reached, it is quite common to sign a promissory contract of purchase and sale. At that time, you may have to pay a deposit to the seller as a guarantee of the negotiating commitment.
Before buying a property in Portugal, it is also crucial to verify the legal situation of the property, that is, to understand if there are mortgages, liens, or other charges that may prevent the sale. Therefore, you should request the Land Registration Certificate and verify with the town hall if the property has a habitation license. You can then start your mortgage application with the bank if you need financing to complete the purchase.
Will the bank grant you a loan?
This process always generates a lot of anxiety, because the financial institution has to carry out a set of procedures to ensure that their client meets all the requirements to obtain the financing and honour a long-term financial commitment. In the first phase, there are three essential parameters, which will define the success and the approval of the operation, as well as the total cost of the credit, namely:
1. Customer evaluation
When you take out a mortgage credit, the bank will assess your ability to honour the financial obligations arising from buying a property in Portugal. To this end, it will analyse a number of elements, such as:
- Age;
- Professional situation;
- Regular income and expenditure;
- Constant information in the entities that centralise the information on credit liabilities;
- Future circumstances that may have a negative impact on your ability to honour the credit agreement.
2. Definition of the effort rate
When assessing your incomes and expenses, the bank will define your effort rate, determining to grant the credit to buy a home in Portugal. The effort rate consists of the weight of the instalments with the existing credits (property, car, credit cards, personal credits and the new mortgage credit that will be contracted) compared to the income. In Portugal, the recommended effort rate varies between 35% and 40%.
3. Property valuation
The result of the property valuation — a report prepared, by an independent expert, which determines the market value of the property — is an essential part of the whole financing process. In fact, it can have quite an influence on the mortgage application to buy a property in Portugal, namely in determining the possible financing amount, as we will explain.
Which factors will you need to analyse for the bank's financing proposal?
If the bank considers that you meet the conditions for the purchase of a property in Portugal, it will make you an offer. Several factors may influence the financial conditions of the loan, such as:
- The amount requested;
- The valuation of the property;
- Or the period in which you intend to repay the credit.
Therefore, you should pay attention to the following parameters:
Interest rate
The choice of interest rate is one of the most important decisions when taking out a mortgage credit to buy a property in Portugal, as it will influence the cost of financing. The interest determines the price one has to pay for their loan. In Portugal there are three types of interest rate, namely:
Variable interest rate
It may vary throughout the loan term, having Euribor as reference. The variable interest rate is reviewed periodically according to the contracted period – usually 6 or 12 months–. So, in a mortgage loan to buy a property in Portugal that uses a 6 month Euribor as an indexing factor, for example, the instalment will vary with market fluctuations and will be revised every six months.
Fixed interest rate
The fixed interest rate, more common in other European countries than in Portugal, consists in practice of an interest rate that is agreed upon with the bank and remains fixed until the loan is completely reimbursed. This interest rate remains constant during the term of the loan, so the instalment is always the same and does not depend on the market variations.
Mixt rate
It is generally defined by an initial fixed rate period (for 5 or 10 years, for example) followed by a variable rate period during the remaining term of the loan. In other words, it provides a fixed instalment in the initial period and a variable instalment after the fixed rate period.
Spread
The spread is the margin charged by banks, which varies according to the customer's profile, the characteristics of the financing and the loan's guarantees. The spread is usually added to the indexer (Euribor, in the case of variable interest rate) resulting in the interest rate of the loan, called Nominal Annual Rate (TAN in Portuguese).
Loan amount
This is the amount that the financial institution will lend you. According to the recommendations of the Bank of Portugal , which should not be over 90% of the property's valuation.
If you wanted to buy a property in Portugal for 200.000 Euros, but the evaluation carried out by an independent expert only assigns the property a value of 180.000 Euros. In this case, the bank can lend you a maximum of 162.000 Euros (180.000 x 90%).
In the case of foreign customers, who may represent a greater risk for credit institutions, the financing percentage may be different from domestic customers. For non-resident customers, the maximum loan amount may be approximately 70% of the purchase price or the appraised value of the property, depending on the financial institution.
Loan term
It consists of the period contracted to return to the bank the capital and the interest of the financing amount to buy a property in Portugal. In short, the shorter the term of the loan, the higher will the monthly instalment be. The final cost of credit will also be lower, as the interest charges will be lower since you pay interest for a shorter period of time. Similarly, the longer the term, the lower the monthly instalment, but the final cost of the loan will be higher since you will be paying interest for longer.
Mortgage insurance
When you buy a property in Portugal using a loan, the credit institutions may require you to take out some insurances associated with the mortgage, such as the Multi-Risk Home Insurance or Fire Insurance (compulsory in Portuguese law). They protect the property. In some cases, you may be required to get a Mortgage Life Insurance, which guarantees the payment of the debt in case of death or incapacity to pay the mortgage back. Insurance can represent an important cost for mortgage credit, but it is also a way to protect the most important investments you make when you buy a property in Portugal.
Taxes and other costs
When you buy a property in Portugal, there are three taxes you have to pay: the Municipal Property Transfer Tax and the Stamp Tax - paid at the time of purchase - and the Municipal Property Tax - paid annually to the local town hall.
The confirmation of the property transaction takes place through the deed of purchase and sale, which is carried out in a register office or in a notary. There are some costs associated with the formalisation of the deed, which may vary according to the register office or to the notary officialising the deed. If the purchase is made with a mortgage, there are also costs related to the acts for the constitution of the mortgage as well as the respective Stamp Tax on the amount of the loan granted.
Final Registrations
With the deed in your possession, the final registration of the property must be made at the local tax office or land registry.
Is it possible to buy a property in Portugal, without being a Portuguese resident and being abroad? What is necessary?
Yes, it is possible to buy a property in Portugal (and obtain financing) if you are not resident in the country or if you are a foreigner and wish to manage the process remotely. The conditions for buying a property in Portugal and obtaining financing for foreigners and non-residents are not very different from the conditions for national clients, except for some minor differences.
Regarding the conditions of mortgage loans, they don’t differ much from the conditions available to national citizens. In some cases there may be some limitations in terms of products, loan, or maximum financing percentages. This is usually related to the higher risk of financing operations for non-Portuguese customers (whose sources of income are generally not in Portugal) or the need for additional documentation required in order to perform the risk analysis. However, financial entities in Portugal such as UCI offer specific mortgage solutions for non-resident or foreign clients who want to buy a property in Portugal and are prepared to provide a quality service in the client's native language.
Today it is possible, even remotely, to manage the purchase of the property, the contracting of the mortgage and the signing of the necessary documentation. The Portuguese real estate market is quite mature and developed and offers good business opportunities, security and confidence in property-buying operations to people potentially interested in buying a property in Portugal. Real estate professionals, credit intermediaries, financial institutions and legal entities play a decisive role and ensure control mechanisms that make buying a property in Portugal a safe option, even remotely and for those who do not know the market and its procedures.
Are you thinking about buying a property in Portugal and taking out a mortgage loan? What documentation do you need?
- Passport or identification document;
- A Portuguese Tax Identification Number (TIN) (NIF, Número de Identificação Fiscal);
- Report on credit liabilities of your country of residence;
- Tax income declaration;
- 3 last pay slips or supporting documents of other regular income for employees on behalf of others and the statement from the employer indicating the type of contract and seniority.
- Company balance and last income statement for freelance workers.
- Supporting documents of last year's annual pension for retired customers.
- Evidence of savings and other income.
- Bank statements from the last 6 months proving income.
- Supporting documents of payment of the last 6 months of other loans.
- Copy of the promissory contract detailing the conditions of purchase and sale.
- Deed or land registry document of the property to be acquired.
If you have already decided to buy a property in Portugal and are looking for a mortgage credit for foreigners or non-residents, then contact us. At UCI, we have mortgage solutions designed and conceived for foreign and non-resident customers and a great team of specialists that will guide you throughout the process.