The market for international buyers in Portugal is incredibly buoyant at the moment, and this is primarily due to the increase in property prices in many other countries making Portugal an attractive place for international buyers to invest.
Taking out a mortgage or secured loan from a Portuguese lender is well worth considering because you would not need to take any risks with remortgaging your home in your country nor would you be restricted to obtaining finance only from global lenders. Over the past few years, Portuguese banks have greatly improved the quality of their services for international clients and most banks have multi-lingual websites and documents and many will have English speaking staff.
So the answer to the question what is the best bank in Portugal for international customers is not so obvious now as it will completely depend on your individual circumstances. We have set out below some general guidelines, about what to expect and factors to be considered. With the inclusion of Portuguese banks, you will have a greater range of secured lending options available to you and you can and should match any lending with your personal financial position.
Top Tips for buying a Property in Portugal
If you are obtaining a mortgage in Portugal but will continue to receive your income from outside the Eurozone, for example in pounds, you will need to consider the currency exposure associated with a mortgage paid in Euros as in reality, the mortgage repayments could increase dramatically depending on fluctuations in the currency exchange rates.
As an international buyer, you will have to provide plenty of supporting documents, such as pay slips, work contract(s), bank statements, proof of address, local Tax number(s), P60 or equivalent to name but a few. The application process can take some time before completion of the mortgage and funds are released. Please remember that you are requesting the bank to consider opening a bank account as well as analysing your mortgage application.
Although general rules and standards do apply to the decision making process, your individual, personal circumstances can make a difference to your application, sometimes to your advantage and other times to your detriment. The role of the lender is to evaluate and assess your personal credit risk and make a decision based on your individual circumstances. Portuguese lenders do not expect you to have a Guarantor, Portuguese or otherwise.
As a rule of thumb, you will not obtain a mortgage higher than 80% loan to value (LTV), especially now as the Banco de Portugal has issued more stringent guidelines. Nonetheless, the final agreed loan amount may be higher or lower than this depending on your own circumstances.
Generally speaking, mortgage repayments should not exceed 30% of your gross income, a figure that may be lower or higher, again depending on your own individual situation. (paper on LTV and taxa esforço).
Fixed, variable and hybrid rate mortgages
Portuguese lenders offer fixed, variable and hybrid rate mortgages. At the moment, the former and the latter are good options as the 12 month Euribor rate will not remain negative in the long term. However, the fixed or hybrid rate options are more likely to include more onerous early redemption penalties, for example, 2% on the amount redeemed plus 4% tax instead of 0,5% plus 4% tax during the variable phase.
Some lenders grant what can seem to be very attractive reduced mortgages rates, but in return, you would be expected to buy some of the bank’s products (Vendas Associadas Facultativas) in order to take advantage of these more favourable rates. These additional products could include life insurance, buildings insurance, debit cards or credit cards. Whilst these products are not mandatory per se, if you do not keep them until the very end of the mortgage, the bank is entitled to change the rate offered on the loan. Therefore, you must keep an eye on the overall package being offered to make sure that you are not signing up an exorbitant mortgage.
You should also actively negotiate the interest rate bearing in mind that the 12 month Euribor rate is currently negative. The headline interest rate (TAN or Taxa Anual Nominal) is therefore deceptively low. All lenders are obliged by law to provide you with the annual percentage rate (APR ) or Taxa Anual Efectiva Global (TAEG) in Portuguese. It includes all costs so that you can more effectively compare different financial products and packages. (verify APR if with insurance or not)
In the same line of thought, the associated fees are not insubstantial and should be carefully considered when comparing different products. Lenders can be very imaginative sometimes combining fees with their in-house services which can make comparisons between different loans from different lenders more challenging. It is very often the top trap for international buyers (as well as for residents) so inquire about them in advance of agreeing to any terms and negotiate a refund of any fees linked to your mortgage or associated bank account.
Taking out insurances will increase the overall cost of the mortgage or loan. Firstly, there is the buildings insurance which is mandatory for all Portuguese lenders. Secondly, in Portugal, most lenders will require you to take out a life assurance policy to cover the full loan repayments amount even if you already have life assurance in place in your home country.
So, to answer the question about whether it is possible for an international buyer to obtain mortgage finance from a Portuguese bank, it is indeed much more accessible than a few years back thanks to massive foreign investment. However, it is not as straightforward process as it can be in other countries and this is where we can offer invaluable advice to guide you through the process to ensure that you get the most suitable product at the best possible rates to fit your personal situation.