Getting a Mortgage in Portugal: A Guide for Expats

Why Choose Portugal

Before we show you how to get a mortgage in Portugal for foreigners, let's examine the property market first. Is it a good time to invest? Most experts agree that the market outlook is optimistic. The COVID-19 Pandemic had a minor impact on market stability. The prices rose 14% on average in 2021. The Portuguese economy and population show steady growth, which positively affects housing demand. Coupled with some of the lowest interest rates in the EU, the property market is expected to rebound strongly in the next five to ten years.

Lisbon is one of the most promising locations for investors who want to see fast returns. The stunning resorts of Azores and Madeira are a great opportunity for more conservative investors. They may not offer the strongest price growth, but their holiday rentals enjoy steady demand almost all year round. The gap between demand for rental properties and their supply is also projected to increase, making this investment option more lucrative.

Portugal is high on the list of foreign investor-friendly countries thanks to competitive real estate pricing, lack of red tape and abundance of long-term loans with low interest rates. Getting a mortgage from a Portuguese bank can be more convenient and financially sensible than dealing with a bank in your home country.

Real Estate Prices

Buying property in Portugal offers a variety of options to any potential investor. Foreign investors continue to purchase more expensive property than locals. The average price per square meter for non-resident buyers was €2,209 in 2023.

Suburban villas in areas like Lagos, Vilamoura or Algarve are sold at €500,000 per property. Luxury villas fall in the range between €1 million and €3+ million.

Modern apartments located in the center of dense urban areas like Lisbon usually cost around €400,000 - 500,000. You can purchase a 30-year old house for renovation for €250,000 or more depending on its location.

Investing in construction is another great option, since a lot of new residential and commercial buildings are being erected in Portugal. The official average value of construction per square meter was set at €512 for the duration of 2023.This number is used to determine the taxable value of property during construction.

Do You Qualify for a Loan?

As a general rule, you should start looking for a loan before you decide on a property. If you have previous experience trying to secure a mortgage in France or Spain, you'll find the process similar. Portuguese lenders are usually friendly to foreign clients, and sometimes even willing to offer advice on choosing real estate. There are more than a dozen financial institutions that offer services to foreigners. The only downside you might experience is the language barrier, so hiring a translator or an assistant is advisable.

Property investors from abroad are always welcome in Portuguese banks due to their low effort rates (how much money you are going to pay compared to your income) and sizable down payments compared to most residents. Factors that influence the chances of you getting a mortgage in Portugal and the conditions of the loan include your country of origin, income, having additional equity or a guarantor.

After you receive a few offers from different banks, you can decide on the type of property and its location. Knowing how much money you can receive from a bank will streamline your search and speed up the negotiation process with the real estate seller.

A few tips that will help you secure a better loan:

• Shop around to find the most competitive offer.
• Your loan should cover about 30% of the value of the property.
• You are committed to becoming a resident of the country.
• You are a retiree with a regular pension income that covers mortgage payments.
• You have a bank deposit or an investment account at a local bank.
• You have another property located in the EU that you can use as collateral.

Banks in Portugal offer both fixed and variable rate loans up to 30 years. You can't get a mortgage unless you provide at least 30% of the property value as down payment. Interest rates for residential property can start as low as 3.3% for variable loans or 4.1% for mortgage offers with a fixed rate.

Mortgage rates for business properties can range between 7.5% and 9% with the loan covering up to 50% of the price or evaluation, whichever is lower. A large and vibrant expat community and multiple transport links to other EU countries and the United Kingdom make Portugal a great place for relocating and starting a business.

Differences between loans for residents and non-residents:

Choosing a Mortgage

Foreign property investors can choose between two basic types of mortgages in Portugal. Fixed-rate mortgages are pretty self-explanatory, while variable-rate mortgages are calculated based on the EURIBOR index.

Fixed-rate property loans

Fixed-rate loans are popular with foreign investors because they become advantageous if the EURIBOR index goes up (and it usually does). Most financial institutions offer a fixed rate for the entire loan term, others provide a mixed solution when a fixed-rate mortgage switches to a variable-rate one after a few years.

Early repayments are fined 0.2% on the repaid capital. Fixed-rate loans tend to have shorter loan terms and slightly higher rates as the banks take on more risks.

Variable-rate property loans

Euro Interbank Offered Rate or EURIBOR is the index that defines interest rates for variable-rate mortgages. Current EURIBOR rate is 2.8% in December of 2022. It is expected to rise slightly above 3% in 2023. It's mainly influenced by the inflation of the euro.

Variable-rate loans are usually a few percent higher than the EURIBOR index. Every six months or so the lending institution revises your mortgage rate based on the EURIBOR fluctuations. The lowest rate that a lender can offer is the EURIBOR plus 1%.

Early repayments are fined 0.5% on the repaid capital. The loan term can be extended to 30 years and sometimes even more.

Optional Property Loans

In rare cases, you might want to opt for a specific banking solution instead of a general variable-rate or fixed-rate loan. If you are building or completely renovating a property, choosing a construction mortgage might be a good option. Some Portuguese banks can cover up to 60% of the total costs of construction plus the value of the land itself.

Interest-only mortgages are very rare and available only for newly-built properties. They have a loan term of two years.

While buy-to-let-mortgages are common in many countries, this is not the case for Portugal. Yes, you can secure funds through a bank loan to invest in a rental property, but the lender won't consider your future rental income as earnings when offering you a mortgage.