Guide to buying in Portugal
The financial crisis of 2007 left the Portuguese economy reeling and property prices collapsed by more than 30%. But how things change. Knight Frank, the property consultancy, reports a Portuguese property price rise of 1% from the third quarter of 2014 to the third quarter of 2015, and experts are forecasting 2% gains for the average property over the next year.
According to a report from the Royal Institutional of Chartered Surveyors (RICS) on the outlook for Europe’s real estate markets, Portugal is, in fact, one of the economies leading the euro area recovery with sales and prices expected to continue rising at a steady pace over the medium term.
Prices, however, are still generally below pre-recession levels, so British investors, feeling more confident about the future and buoyed by the growing strength of the pound, are coming back to the market in their droves.
Due to its tighter lending conditions and stricter planning laws, Portugal’s property market never boomed like Spain’s, and is in much better health as a result, despite its recent sluggish nature. And as tourism is strong, particularly in the Algarve and increasingly along the likes of the Silver Coast, property rental opportunities are abundant.
It’s no wonder, therefore, that Portugal is currently third on our list of hot spots, after Spain and France, accounting for 15% of mortgage enquiries last year. Property is bouncing back and it remains a buyer’s market in most areas.
Golden Visa proving a success
The Golden Resident Permit Programme of 2012 is one of a number of initiatives introduced by the Portuguese government to help buoy up the economy. It facilitates residency for the foreign purchase of property with a minimum value of 500,000 euros. By the start of 2016, an estimated 1.46bn euros had moved into the country as a result. And further growth is predicted, which can only be good news for the Portuguese property market.
As well as this, the government has introduced a tax system for non-habitual residents, or non-Portuguese who have not lived in Portugal for the previous five years. Under certain criteria, it allows specified types of global income, including pensions, to be exempt from income tax for 10 years.
Lending conditions continue to improve, and the reduced cost of funding together with continued interest from Portuguese lenders to assist foreigners to buy property means that many deals are becoming cheaper. Rates early in 2016 started at 3.3% for a variable rate of up to 30% loan-to-value (LTV), 3.4% for a variable rate of up to 60% LTV, and 4.25% for a five-year fixed rate of up to 80% LTV. Interest-only deals are rare, so most mortgages are on a repayment basis, and the maximum term of any mortgage is 35 years, but this varies depending on the type of loan.
It’s a good idea to obtain an ‘Approval In Principle’ before committing to a property purchase. This costs nothing, but will tell you upfront about how much you can borrow, and therefore what price range you can realistically consider. It will also prove to vendors that you’re serious about buying, and can lead to your mortgage application being fast-tracked once you’ve chosen your property. And it costs nothing.
As always, it’s vitally important for buyers to seek the right advice. Bitter experience has taught many overseas property buyers that scrimping on independent legal advice can effectively cost them their holiday home. You should always go through the same process that you would follow if you were buying a property in the UK. Take independent advice from an English-speaking lawyer who is not connected to your seller, estate agent or property developer. It’s essential that they confirm to you that all required permissions have been obtained.
One of the biggest advantages of taking out an overseas mortgage is that the lender will do its own checks on the property, ensuring that a proper legal title exists, that the property is registered in the buyer’s name and that a valuation of the property takes place. Banks will also check other issues such as planning permissions and building licences, which are key for peace of mind.
Clare Nessling is Director of Conti, the overseas mortgage specialist.
Tel: 0800 970 0985