Mortgage for non-residents in Portugal

Buying a house and applying for a mortgage for non-residents may seem like a complicated process if you do not live in Portugal, but we can help.

The weather, the good food, the hospitality, the low cost of living as well as tax benefits, make our country an increasingly attractive destination for non-residents who consider Portugal to be not only a great holiday destination, but also as a good place to live. And in fact, more and more non-residents are choosing to buy a house in Portugal.

If that’s your case and you’re also considering applying for a mortgage for foreign nationals, you should know the main conditions.

This article covers the most important topics such as buying a house and mortgages for non-residents, for those who want to take that first step and make their dream of owning a house in Portugal come true.

Why buy a house in Portugal? Is it possible?

It is understandable that a non-resident may have doubts when thinking about buying a property outside their country of origin. The desire to buy a holiday home or even a house to live in all year round, is often at odds with the fear of the unknown.

Am I making a good investment? Will I lose money? What if my family doesn't like it? I am not familiar with the language or with Portuguese law, so how do I obtain resident status? What costs and taxes will I have to pay? Am I getting a good deal?

These are some of the concerns expressed by non-residents who are thinking of buying a property in Portugal.

So, where to start? Above all this, you should know that there are several reasons to buy a house in our country.

Portugal knows how to welcome you

The Portuguese are usually praised for being welcoming and helpful, and most of them speak foreign languages such as English, French, and Spanish.

In addition, Portugal is a very safe place to live and to invest in. It is a good option for those who want to feel welcomed and to be part of the community.

A lot to discover

The country can be traversed from north to south in a few hours, but there is always something new to discover.

Portugal is a country of vibrant cities, culture, good food, breathtaking landscapes, a coastline with white sandy beaches and an interior with luscious forests, mountains with unforgettable views and villages that retain the charm of times gone by.

The climate is another great draw for the country, with its hot sunny summers and mild winters.

Excellent location

Portugal is a short flight from most European capitals and has frequent connections to the world’s major cities. Due to its privileged geographic location, it is also a prime point of contact with other continents.

It is the ideal destination not only for extended stays, but also for shorter ones and during the off season.

Cheap cost of living

Due to its lower cost of living when compared to other European countries, Portugal offers a great quality of life. But that’s not all.

The property market offers excellent opportunities and high quality at a much lower cost compared to most competing destinations.

Tax benefits and low taxes

In Portugal, non-residents benefit from a tax scheme which offers some advantages.

For foreigners working in Portugal this means paying less taxes than in their country of origin and, for those who receive their income from abroad or who have a pension abroad, being exempt from some taxes.

That’s why it’s difficult not to fall in love with Portugal. For its cities. For its villages. For its streets. For its homes. For its people. So why not take the next step?

Deciding what to buy

After deciding to buy a house in Portugal, there are some questions you should ask before you decide which property you want, which can help you with this step.

The first question you should ask is: what is the reason for buying a house in Portugal?

• Do you want a house with more space?
• Do you want to enjoy the sun?
• Do you want to enjoy the hustle and bustle of Portuguese cities and Portuguese culture?
• Or do you want the peace offered by a peaceful lifestyle in harmony with nature?
• Are you looking to make a safe real estate investment that will pay off in the future or do you want to live in a different place?
• Do you plan to continue working at distance, do you want to open your own business, or do you just want to enjoy retirement and live more peacefully?

Going through and answering these questions can help you better understand why you want to buy a house in Portugal and in what area you can start looking for your dream home. In the south, where the beaches and the sun are the main attraction? In the north, where nature and tranquillity reign supreme? In the big cities of Lisbon or Porto, where all the action is? Or in the centre and in the interior where there is still a lot to discover?

How will you use the property?

Another important question is how you will use the house: Is it just for weekends? For a month or two during the summer? For retirement? For investment? For work? Will it be a home for the whole family, or for hosting friends occasionally?

This can give some clues as to what you are looking for in your home in Portugal. For example, if it should be located close to the beach or in the city, if what you are looking for is a detached house in the countryside or close to transport links and work, or if you need a house with a lot of space or just a few square meters.

You will be able to define important aspects for selecting properties such as:

• The location of the property;
• Its floor area, in square meters;
• The number of bedrooms;
• The distance from city centre, main services, and airports.

It will also be helpful for you to have an idea of your property must-haves before you do a viewing:

• A large and functional room for the whole family;
• An office;
• A garden;
• A spacious balcony;
• A swimming pool;
• Garage;
• Guest room…
  
  

How much do you want to spend vs how much can you spend?

Another important factor is defining the limits of the investment you can make when purchasing your property in Portugal. That is, it is important to know exactly how much you can spend and where the money will come from. From savings?  From selling a property? Will you need financing? If so, will the financing be obtained in the country of origin or requesting a mortgage in Portugal? And how do mortgages for non-residents work in Portugal?

Also consider the costs involved in buying a home in Portugal, which can amount to approximately 7%-10% of the property’s purchase value. Do you have these funds? 

All this will help you to understand how the dream of buying a house in Portugal can become a reality. If you do not have your own capital for the purchase, the good news is that there are mortgage solutions for non-residents who want to buy a property in Portugal and with very attractive conditions and interest rates, as we will explain later in this article.

Tax benefits and incentive schemes in Portugal?

Portugal is one of the favourite destinations for people of countless nationalities due to its tax benefits and investment incentives for non-residents and non-habitual residents. With incentives such as the Golden Visa scheme and even a special tax scheme, Portugal can be an attractive destination to buy a property.

Do you want to find out more? We will explain everything about the scheme covering Non-Habitual Residents in Portugal.

Buying a house in Portugal

It is always advisable to turn to professionals and specialists to support you in the process of buying a house in Portugal.

Talking to real estate agents, consulting financial advisors, and getting information from financial institutions are excellent ways to better understand the process of buying a house.

However, all non-residents who are thinking of buying a house should consider seeking legal support, if possible, as soon as they start the process of searching for a property. Whether you receive your legal advice through the real estate agency with which you are buying the property (most real estate agencies have legal advice and professionals with expertise in this area), or through lawyers or private solicitors, it may become the key to a positive house buying experience.

This advice will help you deal with the tax and legal issues associated with buying a house, avoid any uncertainties surrounding the deal itself and make some tasks and actions easier when you are away, for example, through power of attorney.

A legal advisor specialised in property law can help you with buying a house and understanding all the details associated with the transaction, but they can also be very useful for someone who is not fluent in Portuguese, as they can help you understand the contracts that will be signed and all related documentation.

Thus, when buying a house in Portugal, there are two defining moments which involve the signing of contracts:

Purchase and Sale Promissery Contract (CPCV)

Once you have chosen the property, the next step is usually carried out through signing a purchase and sale agreement (CPCV). In practice, this contract establishes the conditions for the deal and it is through it that the deposit is paid, which is the first payment made to the vendor or real estate agency.

Having legal support is crucial at this stage, not only for the execution of this contract, but also for understanding all its implications (the conditions for returning the deposit if the deal does not take place, the deadlines that need to be met, the identification of the parties, the verification of the property’s legal and registration status), and, if necessary, to take legal action.

Deed of purchase

The confirmation of the property transaction is made through a deed of purchase. In Portugal, this has to be carried out through a notary in a public or private notary's office, as notaries are the representatives of the Portuguese legal system and they ensure that the documentation and the sale of the property does not present any problem or represent a risk for the parties.

This step, which requires the presence of all parties involved (buyers, sellers or their legal representatives, the representative of the bank if there is a mortgage for foreign nationals, the real estate agency, the solicitor, etc.) to confirm that the deal has been concluded, following the transfer of the amounts agreed upon.

The deed document is read, verified, and signed by both parties.

After this act, once you are in possession of the deed of purchase, the final registration must then be made, either with the local tax office or with the land registry.

The costs of buying a house in Portugal

There are some costs and taxes associated with buying a house in Portugal, which you should be aware of beforehand as they can have some impact, both on the business and on the capital required:

Municipal Property Transfer Tax (IMT)

This is a one-time tax which is paid with the transfer of the property and its value may be a maximum of 8 % on the tax asset value of the property or the value declared in the deed of purchase (whichever is largest).

Proof of payment must be presented on the day the deed is signed.

The IMT amount tables vary according to the purpose of the dwelling: the rates are lower if the property is being bought as your primary residence, and higher if it is a second home or for rent.

The IMT values also vary depending on whether the property is located on the mainland or on the islands.

Properties located on the mainland are also exempt from this tax up to the amount of EUR 92 407 and up to EUR 115 509 if they are on the islands.

Stamp Duty (on purchase)

This tax is charged to the buyer once the deed is signed. The current rate is 0.8 % on the purchase amount or on asset value of the property, whichever is highest.

Municipal Property Tax (IMI)

All owners are subject to the Municipal Property Tax (IMI), which is the annually paid tax levied on the equity value of properties located in Portugal, where rates are defined by each municipality.

You may be exempt from paying this tax under certain circumstances, so it is important that you consult the local Tax Authority about existing conditions for exemption to ascertain whether you meet any of them.

If you are using a mortgage to finance the purchase of a house in Portugal, there are other costs involved:

• Stamp Duty (on Mortgages) – Stamp duty on the value of the mortgage loan, with a current rate of 0.6 %.
• Bank fees – Some additional charges called bank charges or commissions may apply, such as:
• Administrative charges;
• Property evaluation fee;
• Fee for preparing contractual documentation;
• Solicitor service, among others.

These costs vary depending on the financial institutions and their values must be detailed in the institution’s offer, namely through the ESIS (offer letter) that accompanies the mortgage loan simulations and the bank’s proposal.

Insurance

Portuguese law requires the contracting of home insurance against the risk of fire, so this will always be necessary, with no exceptions.

It is not mandatory to take out Life Insurance associated with a mortgage for non-residents, however, it may be possible to contract it under certain circumstances.

How to pay for your house in Portugal

Non-residents buyers often have the necessary capital to buy a house without resorting to mortgages for foreigners and often, when they have to resort to financing, they prefer to take out the loan in their country of origin.

However, offers for mortgage loans for non-residents in Portugal can be very attractive, because in addition to the interest rates being quite low, the financial system is safe, so more and more people are opting for this solution. And how do mortgages for non-residents work in Portugal?

Does nationality influence the mortgage conditions for non-residents in Portugal?

Generally, the conditions for applying for mortgage are determined, among other factors:

• According to the economic profile of clients;
• According to the property’s conditions;
• And by the financial institution's risk policy.

That said, nationality can also influence the mortgage conditions, although this is more because the credit profile of a non-resident may be considered higher risk when compared to national citizens.

On the other hand, the banking sector is also subject to strong regulatory pressures to control of money laundering and is therefore obliged to apply particularly stringent measures to ensure that the investments and operations of its non-resident clients are in compliance with the law.

Conditions of Mortgages for foreign nationals in Portugal

Mortgages for foreign nationals are similar to those granted to national citizens, however these may be subject to more demanding conditions.

Not all credit institutions approve financing to non-residents. In other cases, loans are subject to certain limitations and conditions, which relate mainly to:

• The maximum borrowing amount;
• The deposit to mortgage ratio;
• The maximum mortgage term, etc.

The main reasons for these differences are related to the greater difficulty in dealing with possible breaches of contract by these customers. That is, in cases of non-payment, it is more difficult to carry out legal actions, especially in the case of non-resident foreigners. Thus, the main collateral for this type of loans is only the property to be financed, so the bank needs to reduce its risk and exposure.

There may also be small differences related to risk analysis and how the housing loan is granted, namely the documents required for mortgage application. In terms of financial conditions, interest rates and fees charges are not very different for domestic and foreign customers.

The maximum terms of the mortgage may be slightly shorter than those allowed for national citizens and, in most financial institutions, may go up to around 30 years.

In terms of financing solutions, both variable rate (based on Euribor plus spread) and fixed rate options are available to non-residents. The latter makes it possible to ensure that the monthly instalments payable remains constant over a certain period of time or even throughout the mortgage term.

In terms of indebtedness, requirements for non-residents generally include a limit of 30% to 35% of the household’s monthly income. That is, the sum of the instalments of a mortgage for foreign nationals and all other debt and liabilities must not exceed that household income percentage, as it is deemed to be an effort rate which allows the household to honour their financial commitments.

Each financial institution determines the acceptable level of indebtedness, the effort rate, the maximum term, the financial conditions, and the risk conditions for non-residents, so these data may vary according to the entity and even according to certain special campaigns for non-residents.

Finally, as detailed in this article, the contracting of mortgages for foreign nationals involves a series of additional costs, such as taxes, expenses, and fees, that can represent about 7%-10% of property’s price. So it is important to consider these charges when making the calculations for mortgage application, as you should have the capital necessary to cover these costs associated with purchasing the property.

Financing percentage

About the financing percentage of mortgages for non-residents, in addition to the aforementioned points, you must consider that there are limits on the financing percentage for mortgage loans for buying a house in Portugal, which is equivalent to about 80% or 90% of the purchase price of the property, depending on client's profile.

The maximum financing amount is usually 60% to 70% of the purchase amount in the case of a second home – and also for mortgages for foreign nationals, due to the higher risk associated with the transaction. Thus, ultimately, an investment of between 30 % and 40 % of equity may be required when purchasing a property.

Most financial institutions are governed by the same limits, unless the customer's credit profile is considered to pose a very high risk and, in that case, the amount of available financing will be reduced.

Documentation required for mortgages for non-residents

The documentation required for a mortgage for non-residents is mostly similar to that requested from domestic clients.

Check here which documents are required for mortgages for foreign nationals, as well as other requirements such as document translation.

Conclusion

The process may seem long and difficult, but with the support of a financial institution specialised in mortgages for non-residents, such as UCI, everything is easier.

You should know that at UCI the time for a decision on mortgage applications is less than 2 days (which lets you know quickly whether you meet the conditions for buying the property you like), and the deadline for the deed is just above 30 days, which enables you to complete your purchase in a short time frame, and, who knows, maybe even while you are visiting Portugal.  

We hope you find this information useful when deciding whether to buy a house in Portugal and contracting a mortgage for foreign nationals. If this is the case, UCI has a team of experts at your disposal who will be with you throughout the process and give you all the information you need to move forward safely.

If you are a non-resident and are thinking of buying a house in Portugal, why not take the first step!? There is no initial cost or commitment. Talk to us!