20 de March, 2019
It is natural that the first thought that comes to mind after deciding on an acquisition is how to finance property in Portugal.
We only have good news: it is possible, cheap and accessible, but the process of selecting the best funding and credit approval has a number of details that we will describe below.
With the free mobility of people in the European Union, it is essential for banks to know how to deal with foreigners, otherwise they will lose relevant business.
As the real estate financing operation is the great gateway to the loyalty of a new client for decades, every major European and Portuguese bank is already prepared to grant credit to non-residents.
Brazilians benefit from this reality by obtaining real estate financing as long as they meet the minimum income and documentation conditions, accepting income obtained in Brazil or even in other countries.
The most important aspect to know how to finance property in Portugal is the approval of the credit. As a general rule and in accordance with the government’s recommendation, the benefit may not exceed 50% of income, less taxes and other benefits and obligations.
Few know that banks are free to break this rule for very special cases, usually reserved for clients with large assets who undertake to use other banking products, such as financial investments.
The type of income accepted for verification changes from bank to bank. Some accept only salaries or income from liberal professionals, others even include dividends and interest from investments and there are even cases where the bank accepts the composition of income from a third party that is a guarantor.
The list of personal documents includes:
See the step-by-step guide to buying property in Portugal here.
According to the recommendation of the Bank of Portugal, banks should not finance more than 90% of a property in Portugal, but a non-resident client gets 60% to 70%, and there are rare cases in the 80% range, when the relationship with the bank is exceptional.
The maximum term of a loan in Portugal is 40 years, but a non-resident client is usually restricted to 30 years. The sum of the term of the financing and the age of the borrower may never exceed 75 to 80 years, depending on the bank. A 50-year-old client, for example, could take a maximum of 25 to 30 years of financing.
Beware of conversations with bank managers about how to finance property in Portugal. In our experience, they are divided into two types: the very optimistic one, who says that anything is possible, and the one who is not committed to anything.
Neither of you is close to reality. The only way to secure financing is a full credit and property analysis. Simulations on websites or in agencies only serve to give a first idea of the conditions and the provision, but without any guarantee in any respect.
The simulation websites of the main banks in Portugal are:
The simulations are only informative and there is always the value of talking to the banks to determine the one with the best fit for your needs.
If there is no guarantee of financing, the best practice for those who want to know how to finance a property in Portugal is always to put a clause in the purchase and sale contract that guarantees the return of any amount advanced if there is a negative answer from the bank.
The most popular modality to finance real estate in Portugal is variable installments, which is composed of an interest rate, also known as a spread, and an index, the Euribor (cost of borrowing between European banks – similar to the Brazilian CDI).
The installments of variable-rate financing rise and fall in accordance with Euribor’s behaviour and may result in much higher (or lower) amounts than those initially agreed. For example, in a financing with a spread of 1% per year, if the Euribor rise 1%, the value of interest will double.
Fixed interest rate financing, on the other hand, will always result in the same instalment from start to finish.
When you receive an offer of financing, the variable rate is always cheaper than the fixed rate in the short term, but it is uncertain who will pay less interest at the end of the term, depending on the behavior of Euribor.
Is investing in Portugal worthwhile? Read this article and find out.
By law banks are required to submit a form with standardized real estate financing information. This is an excellent tool for comparing proposals to find out how to finance property in Portugal.
The first step is to understand that the Annual Effective Rate (TAN) is nothing more than the sum of the spread and the Euribor. The spread is always negotiable, but the Euribor is a calculated interest rate.
Analyzing the spread or TAN alone is not enough because there are other associated insurance costs, commissions and fees that have a material impact. A cheap trick of the banks is to offer a comrade spread and then charge in the cost of life insurance, for example.
To avoid this trap, it is also necessary to analyze the Annual Percentage Rate (APR), which is the expression of all the costs involved, such as life and property insurance, administrative fees and commissions, evaluation and registration costs.
The cheapest loan will be the one with the lowest APR.
It may also be interesting to read our article about buying a house in Portugal.
A common practice in Portugal is to have lower costs for customers who want to deepen the relationship. The bank offers lower fees for those who transfer salary, hire insurance, a credit card, maintain applications, authorize debit accounts and so on.
Because of this, when we analyze the standardized form there will always be two TAEGs, and the TAEG of clients who meet the minimum relationship requirements is always the most advantageous.
The purpose of the property plays an important role in the proposal of how to finance property in Portugal. The terms are longer and costs less for own housing, with a penalty on the conditions for second housing or investment.
The contracting of life insurance and real estate is mandatory for all property financing in Portugal, however what few know is that the choice of insurer suggested by the bank is optional.
If a bank offers the best spread conditions, but is the most expensive in life and property insurance, you can take out insurance from an independent financial institution.
Always ask the bank what the rate would be if you took out the separate insurance and see what the combination of spreads and insurance is that results in the lowest costs.
Properties in Portugal: where to find and what are the requirements to rent and buy.
With the purchase transaction agreed, the next step is to enter the personal documents and the property with the bank chosen, which will provide the assessment.
The documents of the property at that stage are generally limited to the land registry, the licence for use and the land certificate. At a later stage, the housing data sheet will be required.
As a general rule, the amount of financing for a property in Portugal is determined by the lower of its value between acquisition and valuation. If the evaluation value is lower than the acquisition value, in practice the percentage financed will be lower than expected. If the evaluation value is higher, the initial percentage remains.
Companies specialized in real estate investment and citizenship can also help in this phase of the process and direct your research, keeping in mind the objective of your investment. Whether you are looking for a second citizenship or simply diversify your property portfolio.
To make your process simpler and safer, you can count on Atlantic Bridge consulting, click here to fill out our form, without commitments.
Transfers of funds abroad must be made through exchange brokers, which may or may not be associated with the bank of your current account. The associated costs involve the Financial Transaction Tax (FTT), remittance fees and the spread.
Check out our guide to sending money to Portugal at low rates.
It is possible to purchase and finance a property in Portugal through a company owned by you, which may mean a lower tax rate for sending money from Brazil, but will mean higher interest rates, lower terms and lower funded percentages.
Important note: the values and rates information serves as a guide in this case and may vary according to the period.
If there is a consensus among investors around the world, it’s this: regardless of value or size – whether it’s a mansion or a 50-square-meter apartment – investing in the purchase of real estate is one of the safest and most effective ways to invest.
Now that you already know how to finance property in Portugal, feel free to contact us and learn more about this process.
Article published on the Euro Tips website: https://www.eurodicas.com.br/como-financiar-imovel-em-portugal/
Author: Marcio Fenelon
Real Estate Investment