Portugal Property Buyer's Guide

In order to obtain a amortgage the property must be able to act as suitable collateral for the mortgage lender. Mortgage lenders will consider existing properties, off plan builds, partial builds and loans for renovations but they must be seen as a sound investment.

It is a good idea to spend time in the area that you are thinking of buying to get a feel of whether you really like it or whether the novelty will wear off. It is usually best not to search during a holiday vacation when the mind set has other priorities but to visit at different times of the year to experience different seasons. That shady cool property in the summer may be freezing with no heating at other times of the year. When you have found a property you like visit at different times of the day – including late evening just in case there is a noisy night club or dogs to disturb your peaceful hideaway. Typically buyers visit a location 5 times before deciding on their dream property.

A regular mistake is to settle for the first property that you are shown, unless you have really researched the market. It may look good value compared to the UK but you won’t know if it is unless you have seen a number of properties for comparison.

Many developers provide inspection trips which are convenient as someone else does the organising and they are usually subsidised. However, be wary of the hard selling techniques and the pressure to sign up or put down a deposit unless you have really done your homework. It is often better to arrange the trip yourself so that you can see a range of alternative properties.

There are plenty of estate agents who speak good English and property websites – the liveinportugal.com website has a number of useful links. The challenge is to narrow the choice and to use the websites efficiently as they may include a massive range of properties that are not of interest. However, using the internet and email can be very useful to see photographs from all angles and of all rooms to help narrow the selection before you visit.

Once you have found your property you should think about how you are going to fund the purchase before you make an offer or sign any legally binding paperwork.

Live in Portugal can help you to work out your budget, to calculate the affordability of your property finance and to work out how much you can borrow. You will need to allow for typical purchase costs such as mortgage fees, brokerage fees (where applicable), valuation fees, legal fees (typically 1 to 2%) and local taxes as well as considering exchange rates if you plan to pay for a mortgage from a GBP income.

We suggest that you make an allowance for life insurance, plus any condominium fees. Your will also need to travel for a number of visits to Portugal so you can the property.

The www.liveinportugal.com website has a detailed mortgage simulator or our staff can help to provide an assessment.

Many buyers look to improve their budget by renting out their property and some developers even tempt buyers with guaranteed rental agreements. However, we would suggest extreme caution when making rental income assumptions – especially in today’s market where more people are looking to do this.

Buyer’s should also be aware that mortgage providers are unlikely to include the rental income when calculating their mortgage affordability.

Even if you are in the position to buy your new property without the need borrow additional money it may still may sense to look at the various financing options.

Most UK nationals buying property in Portugal already own a property in the UK. As such buyers will often consider whether to increase a mortgage on a UK property to pay for the overseas purchase, or to have a new mortgage on the property in Portugal.

UK banks may suggest an increased mortgage in the UK because this is what they regularly provide and most do not have a strong branch network in Portugal. However, there are advantages and disadvantages for doing this; a GBP mortgage for example may give rise to additional currency risks although it may be easier to arrange due to the familiarity of the UK banking system.

Live in Portugal provide mortgages for a whole range of situations.

• New purchases / second homes
• Individual constructions
• Renovations

In Portugal the most common mortgage type is the Euro variable rate mortgage. Typically, the mortgage cost is based on 6 months euribor plus a margin. Every 6 months the mortgage base rate changes according the current Euribor rate. The margin will remain the same.

If you do decide on a mortgage for your new property in Portugal it pays to check out the providing bank and whether they have English speaking staff who are accessible and who understand your situation. Once you have bought your property you will have an ongoing need for banking services such as direct debits and credit cards – along with a good online-banking system so that you can control the money side from the UK.

The mortgage application process is fairly straight forward and there are a number of steps which will vary according to your circumstances. You should also be prepared to be a little patient and allow sufficient time for the process as we regularly find that gaps in the documentation or items such as insurance cause delays. The www.liveinportugal.com simulator can give an instant price indication and many brokers advertise that decisions are made in a few days. However, this can be misleading as in practice we find that the whole process typically takes about 8 weeks (to release the funds) with a lot of dialog between ourselves and the applicant along the way.

You will be required to open a bank account with CGD to service the mortgage payments but this is also useful to arrange payment of ongoing local expenses. Tip: contrary to many comments you may open a Portuguese bank account without having a Portuguese Tax Number thereby allowing you to open an account straight away– see opening a bank account for more details. However, you will eventually need a Portuguese Tax Number to complete the purchase of your property.

To minimise hold ups in the application process you need to provide current and original documentation from the start. You should also be realistic with respect to the assumptions on your income, the level of mortgage that you can support and the bank valuation that you are likely to receive on the property you are buying.

Banks look closely at the LTV (Loan To Value ratio – i.e. the ratio of the size of the mortgage to the value of the property). The lower the LTV the greater the initial deposit that you will need to find for the property and the easier that it will be to secure a mortgage. A lower LTV is also likely to result in a lower mortgage cost.

In the current economic climate the maximun LTV is likely to be 80% but this is becoming increasingly rare with most banks now limiting their mortgages to 65% LTV.

The maximum term for a Live in Portugal mortgage is 30 years, repayment must be by age 75 on maturity. The minimum age to apply is 30 and the maximum is 65.

Set out below is the way the process generally follows:

• Speak with the bank advising them what you require and to discuss your individual financial situation



• Most banks are able to give you an answer in principle based upon some basic information on whether what you are looking for is available and also affordable.



• Complete the bank mortgage application forms and submit with relevant, supporting documents for the banks underwriters to analyse. At this stage we recommend you visit the bank either at their UK office or at a branch in Portugal for them to take copies of the original documents and certify them.



• Analysis of the documents can take a week to 10 days to process and is normally carried out in Lisbon. If everything is satisfactory the bank will advised you the terms and conditions of the offer including the rate, term, amount and any additional products or services required. This is normally valid for one month.



• Following a positive answer this will be subject to a bank valuation. You will at this point be required to collect all the necessary legal property documents as well as the internal and external property plans. The bank will also require you to open a bank account at this point and deposit both the valuation fee and mortgage arrangement fee.



• We recommend you instruct a lawyer to act on your behalf and obtain a Portugal tax number which is required before the final deed



• Once the valuation is carried out the report is received within 10 days. You will be advised of this either by writing or by email



• The banks underwriters will then check the report and as long as there are no problems issue an offer letter to you. This is valid for 3 months giving you time to decide when you want the final deed to be and arrange any additional requirements eg: building and contents insurance. You will be required to sign the terms and conditions of the mortgage approval and give to the bank. These for legal reasons will be in Portuguese but your lawyer will be able to explain everything before signing.



• The banks legal team will together with your lawyer arrange for the property to be provisionally registered in your name and set a date for the final deed



• The final deed takes place at a notary who checks the legal paperwork and also that all relevant taxes have been paid for the transaction and transfer of ownership to complete.

Life Insurance

We recommend that you have adequate life insurance and in some cases it will be a condition of advancing the funds on a mortgage.

Arranging additional life insurance that is acceptable to a mortgage provider can often be the most cumbersome part of the process because in most cases a bank cannot do this for you (or it is carried out by a separate insurance subsidiary - i.e. different people). Furthermore, it is often the case that the bank will only accept life insurance from a Portuguese life insurer thereby adding to the complications.

Financial regulations usually mean that you must apply directly to a life insurance provider in Portugal and often those insurance companies are not well set up to service non Portuguese residents. For example: if a medical is required, arranging this in Portugal with an English speaking doctor can be a challenge. In such cases it is often easier to reduce the LTV of the mortgage (if that is possible) and try to persuade the mortgage bank to reduce the life insurance requirement.

Buildings Insurance

It will be a condition of advancing the funds to have adequate buildings insurance for the property that you are buying.

A figure for the insured value will be given by the bank on the valuation report.

Contents Insurance

Contents insurance is optional but recommended. Insurance rates may vary according to the use of the property - for example: remote holiday homes with only occasional use may attract a premium for obvious reasons.

Having found a property there are a number of required checks to ensure no major problems or obstacles prevent the purchase from happening. The buying process is similar to the UK but not exactly the same and you will need a lawyer with good local knowledge of the Portuguese legal system. Using a Portuguese registered lawyer is essential although some firms operate in both the UK and Portugal with obvious advantages.

We also recommend that you use a law firm that has good English speaking staff who can explain the buying process and answer any questions you may have. Lawyers who are familiar with both legal systems are also more likely to understand the differences between how the process works in Portugal and the UK which can help reduce confusion in some areas.

The main role of the lawyer is to:

Establish that a property has clean title:

This is not as straight forward as in the UK because the system of property registration is less well established.

Ensure that the ownership is undisputedand that the owner has the right to sell.
Again this not straight forward, largely because of Portuguese inheritance laws that pass property jointly to all the children in the event of there not being a will.

Assist with your tax status in Portugal:
For example, you will need to obtain a Portuguese fiscal number from the authorities when buying a property. You will also need to pay a property transfer tax (IMT) For example, you will need to obtain a Portuguese fiscal number from the authorities when buying a property. You will also need to pay a property transfer tax (IMT) and set up the utility bills in your home.

Act as your legal representation when signing the deed
Note, all the legal documents will be in Portuguese.
From a practical point of view you may wish to consider giving the lawyer a power of attorney so that you do not need to travel. However, we suggest that you ensure that such delegated powers are very specific – for example; to complete the deed of property at address (your new home).

Pre-registeringand registering the mortgage deeds with the land registry

Ensure completion of all other associated documentation
For example; obtaining the new land registration certificate (Caderneta Predial), a Matricial certificate (certidao matricial) from the Tax department, a property passport and habitation certificate (Licenca de Habitcao) from the local authority (Camara) in the case of a new build.

As well as acting for you with respect to the property purchase we recommend that you discuss broader issues such as inheritance and potential tax liability in the future – such as capital gains tax. Such items may influence how you purchase your property.

It is also important to consider how you will make the payments for the mortgage. These will be taken directly from your Portuguese bank account and be made in euros. Therefore you should allow for movements in the GBP to Euro foreign exchange (FX) rate. For example between 2003 and 2007 the FX rate was typically £1 = € 1.47 then in 2011 the FX rate was typically around £ 1 = €1.14 When sending money from the UK the money transfer mechanism and the FX rates can often be as critical as the interest rate of the mortgage. This is an area where Live in Portugal is highly competitive with a fast and free transfer system designed especially with this in mind.