Portugal – back on the map – As featured in the March/April edition of Your Mortgage magazine

Property investors are returning to Portugal, encouraged by a recovering market and a stronger pound, says Clare Nessling.

The financial crisis of 2007 left the Portuguese economy reeling and property prices collapsed by more than 30 per cent. But how things can change. Knight Frank, the property consultancy, reports a Portuguese property price rise of one per cent from the third quarter of 2014 to the third quarter of 2015, and experts are forecasting two per cent 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. Not bad for a country previously dubbed as one of the ‘sick men of Europe’.

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 per cent of mortgage enquiries last year.  Property is bouncing back and it remains a buyer’s market in most areas.

The country

Those familiar with the country will know, once famous for its rich seafaring past, Portugal is now known internationally for the coastal resort of the Algarve, and according to aplaceinthesun.com, it offers a less-developed alternative to the Spanish Costa del Sol.

Snuggling next to Spain and fringed by the Atlantic, the country’s rugged shoreline is generously sprinkled with inviting sandy beaches. These are interspersed with traditional fishing villages and the three main populated regions of Porto, Lisbon and the Algarve.

For those not so familiar with Portugal, visualise fishermen mending their nets beside brightly painted sardine boats, cobbled streets, dazzling whitewashed houses and medieval towns. This small country shares the same glorious attributes as its larger neighbour but on a more intimate and humble scale. For many overseas investors the combination is overwhelmingly compelling.

Home to some of the world’s most prestigious golf developments and brimming with other top class sporting facilities, Portugal offers numerous opportunities to unwind and play. Its picture postcard scenery, azure seas, Mediterranean climate and welcoming people endear those looking for a more relaxed pace.

Stronger pound means more bang for your euro

Interest in Portugal has also been buoyed by the growing strength of the pound against the euro, and even though that’s taken a dip in recent weeks (at the time of writing), it’s still a lot better than it was just a few years ago. A €200,000 holiday home, for example, still costs around £21,000 less than it did in the summer of 2013*, showing just how much difference the currency markets can make.

 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. To date, an estimated €1.46 billion has 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.

Borrowing

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 now start at 3.3 per cent for a variable rate of up to 30 per cent loan-to-value (LTV), 3.4 per cent for a variable rate of up to 60 per cent LTV, and 4.25 per cent for a five-year fixed rate of up to 80 per cent 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 up front 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.

Caveat emptor

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

www.mortgagesoverseas.com

Top tips for buying in Portugal

 Obtain an Approval in Principle

This will confirm that you can obtain the necessary funds before signing any dotted line and prove to sellers that you’re a serious buyer.

 Consider exchange rate fluctuations

We generally recommend that an overseas mortgage and the income used to service the mortgage repayments are in the same currency, thus avoiding exchange rate issues.

New build properties

If buying from a developer, check their track record and how long they’ve been trading. Obtain references from previous buyers and check comparable properties in the area and any re-sales offered on the same development.

 Factor in additional costs

Bear in mind that bills don’t end at the asking price. Lawyer’s fees, local and national taxes, insurance, and so on, can often add at least a further 10 per cent to the cost of your acquisition.

 Seek professional advice

Take independent advice from an English-speaking lawyer who is not connected to your seller, estate agent or property developer.

 Best buy mortgage rates for property in Portugal

Interest rate Product type Max LTV Repayment Method Minimum Loan
3.40% Variable 60% Repayment €150,000
3.65% Variable 80% Repayment €100,000
4.25% Fixed – 5 years 80% Repayment €100,000
5.25% Fixed – 15 years 80% Repayment €100,000

Source: Conti. Rates correct as at 22/1/16. All product specifications will depend on individual circumstances. The table shows a small selection of the deals currently available and should be used as a guide.

*Based on exchange rates as at 22/1/16

 

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