Here’s what you really need to know about the process as an overseas buyer.
The good news is that buying a property in Portugal is quite a streamlined process and normally takes between two and three months.
It is not too different from buying a home elsewhere, but there are important procedures and steps that every buyer should be aware of to ensure your transaction runs smoothly. It also makes sense to get all your ducks in a row prior to deciding on the home you want to buy. So, choosing a lawyer, finding out how much you can borrow, deciding on the right mortgage and securing a loan in principle should be done beforehand.
Finance – how mortgages work in Portugal
Portugal offers a robust banking network with a good choice of local and international banks, including Santander, Novo Banco, Bankinter and Millennium BCP. Portuguese lenders will offer mortgages to individuals, including foreigners, who wish to invest in Portuguese property. The normal term of a bank mortgage is 30 years for a non-resident and a maximum of 50 years for residents, subject to age limit to 70 to 80 Years depending on the lender.
Getting your mortgage offer in principle
Just as in the UK, it is prudent to get a mortgage agreement in principle before making an offer on a property. Usually, once you have found the right deal to suit, often this will be easier using an experienced broker, after completing the application and supplying the paperwork including proof of identity, income, savings and your Portuguese tax number, you will receive a non-binding statement from the bank to confirm the lending level you would be approved for.
LTV for non-residents
As a rule, loans offered by Portuguese banks are between 65% and 75% of the purchase price to non-residents. There is a mortgage application fee, values depending on the bank and terms of the loan. Most banks provide English and multi-lingual speaking staff to assist when arranging finance.
Good to know…..
In general, all lenders with insist on building insurance, and in most cases Life Assurance, although the latter will vary on lender and your residence status.
Our expert tip….
‘Fluctuating currency rates require protecting your funds and mitigating risk. This subject is covered in a complementary Q &A with Capitex, our foreign exchange (FX) partner, where Managing director, Joe Edwards explains about overseas property transactions.’
What about deposits when buying a property
In usual circumstances, buyers are required to pay a minimum deposit of 10% of the sale price when signing the initial agreement Contrato de Promessa de Compra e Venda.
If you are not already in Portugal, you will need to arrange for a deposit to be transferred from overseas. For this, it’s important to bear in mind that currency rates can fluctuate and when you are transferring a large sum of money, you should look for the best exchange rate.
Find an independent solicitor or lawyer
Choose a solicitor (Solicitador) or a lawyer (Advogado) to handle your purchase, many of these will be bi-lingual or multi-lingual. Your lawyer will help to oversee and check the legal contracts, check all the property and mortgage documents, and deal with any additional searches you may require.
Our expert tip…
‘There is a minimum level of professional indemnity in Portugal, so be sure to pick a lawyer with sufficient cover, which will safeguard against any future claim or liability regarding your property purchase.’
Using a notary
One of the most important aspects of buying a property in Portugal is the notary, which is addition your independent solicitor. A notary works on behalf of the state; they assume responsibility for checking the Land Registry (Conservatória de Registo Predial) and Inland Revenue (Repartição de Finanças) to make sure the property can be legally sold and check for any restrictions on its use.
Fiscal number (Numero de Contribuinte)
Once you’ve been successful in finding the property you want to buy in Portugal, the first step is to obtain a fiscal number (Numero de Contribuinte) either from the local tax office, or it is allocated when you open a local bank account.
Using a licensed estate agent
When you have agreed a price and have your offer accepted by the seller using your estate agent (Imobiliaria), who should be licensed through the Associacao de Mediadores Imobiliarios, you can go back to the bank to complete the mortgage application.
Signing the documents for Deed of Purchase and Sale
At this stage, you are also required to pay the property transfer tax (Imposto Municipal sobre Transmissões) referred to as IMT. The level of IMT is based on the purchase price of the property and works on a sliding scale that can be consulted during your search for a property.
Sale Contract
Although not mandatory, by signing the Contrato de Promessa de Compra e Venda (sale contract), witnessed in the presence of the notary, both parties have some guarantee prior to waiting for the mortgage to be processed or construction completed, ahead of signing the Escritura (Deed of Purchase).
Deed of Purchase & Sale
The Deed of Purchase and Sale (Escritura Publica de Compra e Venda), when the property will be registered under your name, is the final document to be signed and notarised.
What to budget for in Portuguese fees and taxes
Stamp duty currently at 0.8% of the value of the home
Property transfer tax: Imposto Municipal sobre Transmissões (IMT) is the main cost. Calculated on the cost of the property based on a sliding scale, from 2% to @8%. A higher tax is payable if the property is a second or even third home. If your purchase is to be your main residence, there is no IMT due on the first €92,407.
Notary and land registry fees are usually combined; expect to pay around 0.2% to 1.2% of the property value.
The seller usually pays the estate agents’ fees.
Overall cost should range from 7% to 10% according to the value/type of property.
Wealth taxes are 0.4% for properties held by companies, 0.7% percent for individuals, and 1% for those whose share in Portuguese property goes over €1 million. There is a €600,000 allowance deducted from the value of all Portuguese properties owned by individuals, but not companies.