As featured in the May/June 2015 edition of Your Mortgage magazine
As Portugal emerges from the financial crisis, property investors are returning to the market in search of opportunistic bargains, says Clare Nessling
After years of stagnation, Portugal’s property market is on the up again at last. To say that the country has been through the mill would be an understatement – the financial crisis of 2007/8 had extreme consequences, culminating in the Portuguese government agreeing to a massive EU bailout of €78billion in 2010.
Since then, the country has been responding slowly to austerity measures including tax hikes and reduced public spending. The property market suffered too, with prices collapsing by more than 30 per cent.
Fast forward to 2015, however, and the outlook is much more positive. According to figures from the Portuguese Real Estate Agents Association (PREA), residential property prices increased nationally in 2014. And a Royal Institution of Chartered Surveyors (RICS) survey in January shows that, for the first time in five years, buyer demand in the sales market is increasing and showing signs of accelerating.
But prices are still generally below pre-recession levels, so investors, feeling more confident about the future, are making their move while there are bargains to be had.
Foreign buyers, in fact, accounted for more than one in five sales last year, and it’s Britons who are leading the charge, followed by the Chinese and French. It’s no wonder, therefore, that Portugal is currently third on our list of hot spots, after Spain and France. Property is bouncing back and it remains a buyer’s market in most areas.
Portugal’s picture postcard scenery, azure seas, Mediterranean climate and welcoming people endear those looking for a more relaxed pace. Home to some of the world’s most prestigious golf developments and brimming with other top class sporting facilities, the country offers numerous opportunities to unwind and play.
Traditionally, the Algarve has been the top choice for British buyers, and this remains the case. Faro airport is very well-served and is within close driving distance of the most popular Algarve locations. That’s not to say that it lacks competition, however. We are seeing increased interest in the Silver Coast and the Costa Verde, for example, where tourism is less developed and major transport and infrastructure improvements are underway.
Prices may be good, but it’s the current strength of the pound against the euro which is providing the biggest boost to buyers’ budget right now. With the value of sterling hovering around €1.38 at the time of writing*it means that for someone considering a home worth €200,000, the property already costs around £10,000 less than it did at the start of this year, and around £21,000 less than a year ago. This buying power is expected to lead to further interest from British buyers during 2015.
Golden Visa proving a success
The Portuguese government has been keen to promote foreign homeownership to help cure the country’s economic woes, and the Golden Visa scheme appears to be working well. Introduced in October 2012, it allows non-EU citizens to obtain a five year residency permit in Portugal by purchasing property worth more than €500,000. After the fifth year, the applicant is eligible for permanent residency and after six years, they’re eligible for Portuguese citizenship.
The scheme has been hugely successful, with 2,022 visas issued since its launch, contributing €1.2bn to the economy, and Chinese investors have been the biggest recipients. Further growth is predicted, which can only be good news for the Portuguese property market.
Buying property in Portugal has become even more affordable thanks to mortgage rates being slashed by up to 1.5 per cent recently. Deals now start at 3.45 per cent for a variable rate of up to 60 per cent loan to value, and 3.65 per cent for a variable rate of up to 80 per cent loan to value.
The financial crisis of 2007 left the Portuguese economy reeling, but the country’s economy has now stabilised and lending conditions should continue to improve.
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.
As always, it’s vitally important for buyers to seek the right advice, and 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.
Clare Nessling is Director of Conti, the overseas mortgage specialist.
Tel: 0800 970 0985
*24 March 2015
Case study – ‘We got a lot of villa for our money’
Paul and Caryn Hughes, both aged 32 and from Kirkcaldy in Fife, are close to completing the purchase of a beautiful four-bedroom villa in Lagos, Portugal. Set in two acres of land, the property is located a few minutes out of the town, and is very secluded with great views of the ocean.
As both are IT professionals who work for their own company, UKhost4u, they are very mobile and can work from laptops, which means that they’ll be able to live in Portugal for several months at a time with their two young daughters. And they’ll rent the property out to tourists for the remainder of the time.
The couple had been looking for a second home for a while and decided that Portugal offered the best value. “Compared with France and Italy, we found that our money would go a lot further in Portugal,” says Paul. “Prices are generally below pre-recession levels and there’s quite a lot of room for negotiation. We managed to get our villa for around 30 per cent less than the original asking price and when you combine this with the pound’s strong performance against the euro recently, it means that we’re getting a lot of villa for our money.”
Paul and Caryn decided to arrange their mortgage though Conti. “This made the whole process a lot easier”, says Paul. “They were very clear about what was needed right from the start and as they know all the restrictions and administration requirements, this saved us a lot of time, cost and hassle and avoided any potential language barriers. They were also able to source the best possible mortgage deal for us.”
The couple took out a five per cent variable rate mortgage deal on a repayment basis, having put down a 30 per cent deposit.
When it comes to advice for others, Paul recommends working with a reputable local estate agent who really knows the market. “Our agent knew that the vendor was keen to move on to another project, so wanted to move quickly and was willing to accept a lower offer,” says Paul. “I’d definitely advise people to be brave when it comes to negotiating price. That’s why it’s important to research your chosen area and seek the right advice.
“You should also be prepared for a fairly long process between agreeing a purchase price to completion. There is a lot of paperwork involved so it makes sense to get things prepared in advance.”
Best buy mortgage rates for property in Portugal
|Interest rate||Product type||Max LTV||Repayment Method||Minimum Loan|
|4.10%||Fixed – 5 years||80%||Repayment||€50,000|
Source: Conti. Rates correct as at 24/3/15. 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.