A buyer’s guide to mortgages in Portugal

If you’re looking to buy property in Portugal, find out how much you can borrow, mortgage options for expats, mortgage calculators and costs of getting a mortgage in Portugal.

If you’re considering buying a house in Portugal, you will typically find no restrictions and a favourable visa program for international buyers, although whether you are a resident or non-resident in Portugal will influence how much you can borrow. This guide explains what you need to know about the mortgage system in Portugal.

Should you buy property in Portugal?

If you are interested in buying Portuguese real estate, you can benefit from low mortgage rates and, if applicable, Portugal’s Golden Visa Program. You can find out more in our guide on buying property in Portugal.

Property prices in Portugal have recovered significantly in the last few of years, and in 2017 they finally outstripped the prices seen before the 2008 housing crash. In cities such as Lisbon and Porto, concerns have even been raised about prices rising too quickly.

In late 2018, the ratings agency Moody’s claimed that average prices in Portugal could increase by as much as 7–8% between 2019 and 2020. In addition to its housing market, Portugal’s overall economy is improving, with growth in 2019 estimated at 2%.

How much can you borrow in Portugal?

There are no restrictions on non-EU residents buying property in Portugal, and the government does what it can to encourage foreign property investment.

Despite this, most banks will only offer loans of up to 65–75% of the value of the property or its sale price (whichever is lower) to non-residents. Fiscal residents in Portugal (i.e., those who pay tax there) may be able to borrow up to 85–90% of the sale price in some cases.

Before offering you a loan, mortgage providers in Portugal will review your financial situation. Most mortgage lenders will not allow the sum of any existing debts and your new mortgage payments to exceed 35% of your monthly income after tax.

Mortgage calculators

Many Portuguese mortgage providers and banks have online mortgage calculators on their websites.

Most of these take into account your net borrowing, mortgage insurance and property tax, then calculate an estimated monthly mortgage repayment.

The mortgage calculator from Quinta Finance also provides links to various lenders and their mortgage products after clicking the calculate button.

Cost of getting a mortgage in Portugal

Mortgage rates in Portugal have been dropping consistently since the first quarter of 2014, when they averaged 3.37%, according to Statista. The most recent data, based on the third quarter of 2018, shows an average Portuguese mortgage rate of just 1.33%.

Taxes and fees you have to pay when buying a home can mount quickly.

Most fees are are charged as a percentage of the purchase price, with the exception of notary fees. Notaries work for the Portuguese government and are charged with ensuring the property transaction is legal, properly recorded and all fees are paid.

Previously, their fee structure was tied to the purchase price. Now, however, the notary charges approximately €153 per transaction, plus €1.25 per amendment or document clause.

Resale properties have traditionally incurred a transfer tax based on the property value and purpose of the property, with rates potentially reaching 8% of the property’s value in certain cases. An additional stamp duty of 0.8% is also paid in some instances, while new-build properties are subject to VAT at 23%.

Mortgage-related fees can include:

• Deed registration: 1%
• Mortgage arrangement: 1%
• Mortgage administration: 1%
• Non-refundable commitment fee: around €600
• Survey and appraisal: €500–€800
• Legal fees (optional): at least €1,000

Tax considerations when buying property in Portugal

In addition to the taxes due upon buying a Portuguese property, buyers may be subject to income tax on rental income or capital gains tax when the property is sold.

For non-residents, rental income is taxed at a flat rate of 28%. Property owners can deduct the annual costs of maintenance, repairs, insurance and municipal taxes as business expenses before calculating the total tax due. However, neither mortgage interest nor mortgage insurance is deductible.

Residents add rental income to other income sources and calculate the income taxes at the standard rates.

Capital gains tax for non-residents is charged at a flat rate of 28% and is payable at the time of sale. Residents add their capital gains to their income, to be charged at the standard tax rate.

If the sale proceeds are used for the purchase of another Portuguese property, only 20% of the net gains are taxed in the sale year.

If the home was a primary residence, 50% is added to the income tax in the year of the sale – unless the proceeds are used within two years to purchase another primary residence, in which case the gains are tax exempt.

Tax planning in Portugal

A notable issue for tax purposes is that non-residents are taxed only on their Portuguese income. Residents, on the other hand, are taxed on their world-wide income.

Because residency can be triggered by being in Portugal for more than 183 days in a given calendar year, or by owning a property which the government considers a ‘habitual’ residence, those seeking to invest in residential real estate in Portugal may wish to seek the advice of Portuguese tax expert for proper tax planning.

You can read more about taxes in Portugal and Portuguese visas and permits.

Documents needed to apply for a Portuguese mortgage

When preparing to take out a Portuguese mortgage, you may be asked to present the following documents as either originals or certified copies:

• Photo identity
• Current proof of residency, if applicable
• Proof of income – such as your latest pay stubs, income taxes and an accountant’s statement of your financial status
• Documentation of existing rent, mortgage and debt obligations
• Bank statements – last 60 days of incoming and outgoing cash flow
• Proof of deposit – last 60 days to show source of funding
• Property details – purchase commitment or sales contract

Property details can include a property plan, tax registration showing that property taxes are current, land registry documents showing the current owners and any encumbrances, a habitation licence outlining the home is habitable, survey and valuation assessment, and an energy rating certificate.

Also, in order to pay the taxes due upon signing the transfer deed, you will need to have a fiscal number in Portugal and may want to open a Portuguese bank account. Your fiscal number can be obtained at a local tax office.

Read more about in taxes in Portugal.

How to apply for a mortgage

Once you have your financial documents ready you can begin shopping for a mortgage on a pre-approval basis. Banks may charge a non-refundable commitment fee of up to €600 for loan amounts up to €750,000, with higher fees above this level.

Once you’ve selected your dream Portuguese property and have either an accepted offer or have a sales contract in place with the seller, you can bring the remaining documents to your mortgage lender and follow an application process that is similar to much of Europe.

Types of Portuguese mortgages

Virtually all mortgages are principal plus interest loans, though banks offer both fixed- and variable-rate mortgages. Some variable-rate mortgages also allow for the same monthly payment or a capped payment and vary the length of the loan accordingly.

Interest-only mortgages are usually only offered for new constructions, and typically only for a two-year term.

Most mortgages in Portugal run for 25 years, but you can get terms up to 30 years. Banks vary the maximum allowed age of borrowers, which can limit the term a given institution will allow.

Most banks will not offer a mortgage to individuals who are over 70-years old, but some will extend this limit to 80.