Mortgages in Portugal

A viable option to take into consideration when buying a property in the Algarve is a Portuguese mortgage. For the last few years there's been a noticeable increase in the level of client's looking at local financing, mostly due to the excellent rates on offer, often under 1%, as well as clients from the UK looking to hedge their bets on the exchange rate fluctuations.

What mortgage options are available in Portugal

The good news is the option available are fairly limited and presently the only option available for non-residents is a standard capital and repayment loan. There is the option of a variable interest rate, which will track with the Euribor, or a fixed rate. You can take the loan for a maximum of 40 years, or until your 75 (this does vary slightly from bank to bank). Although a lot of clients don't really want to be saddled with a mortgage of this long, it is actually more prudent to take the extended long period and make over payments if you intend to pay off the mortgage before the term ends. Under Portuguese law the pre-payment penalty from all banks is fixed at 0.5% for variable rate loans and 2% for fixed rate.

Since 2023 the Euribor rate increased from less than 0% to almost 4%, as the loans are tracked to the Euribor rate then it will update every 12 months (depending on the loan). It is possile to fix the rate for those wishing to know exactly what their outgoings will be for the next few years. Currently spreads are around 1%, which is fixed for the duration of the loan. 

How much can you borrow

We like to pre-approve all our client's before they start physically looking at properties. It will not be an official bank approval, however it will give you a clear indicator of what level of funding is available as well as planning the repayments into your expenses going forward. In many cases leaving this until you've found a property leads to disappointment from either losing the property due to the time to be approved, or not receiving the funding level needed to fulfill the purchase.

Simple put the banks will calculate your affordability rating by looking at your net income versus your fixed outgoings. What's considered as fixed outgoings, will be mortgages, personal loans, car loans etc... Bear in mind that all income presented must be substantiated by the relevant tax returns and documentation to be counted. Dividends, share's, pensions etc.. can all be included within your income.

For example: if you have an income of €2,000 per month, outgoings of €1,000, your net income would, therefore, be €1,000. Banks will then apply their "affordability" percentage, which can be up to 40%, which allows you a repayment figure of €400 per month (40% of the net income of €1,000).

There was a period of time some years ago when the banks would offer better packages for their own properties, obtained via repossession. However this is not really the case presently. In fact in some cases you can get a better deal from another bank, when buying bank owned properties.

You do have some slight advantages using the selling bank of course, there's already a preset valuation, there's no costs for any survey etc.. And the terms can sometimes be tweaked a little from the banks normal terms, but don't expect anything drastically different to what's on offer as a whole.

Once you've found a property in the Algarve to buy then the mortgage approval process can be completed fairly quickly. This can vary from a few days until a few weeks, depending on the bank in question.

The process is fairly straight forward, all the paper work much be collated and submitted to the bank(s), including the property documentation. Once this has been analysed and your affordability assessed the approval will be granted, subject to the property inspection. The bank will, at this point, request you open your bank account and pay the survey fee's into the bank to get this arranged. After the survey is finished the full approval will be confirmed and you're clear to close. From this point the banks will need at least 7 days to release the funds, so in practical terms you can expect an approval and funds available in around 30 days from start to finish.

If you buy a property with IRG Property we will be happy to faciliate the mortgage approval process, from start to finish, for you free of charge.