As featured in the May/June edition of Your Mortgage magazine
Portugal – sailing into calmer waters
Property investors are returning to Portugal, encouraged by signs of an economic recovery and a stronger pound, says Clare Nessling.
The Portuguese property market was one of the worst hit by the financial crisis, but it appears that the storm has lifted at last. With its economy on a much sounder footing, the country has waved goodbye to its worst recession since the 1970s.
Portugal’s more upbeat economic news of late has provided a boost to investors’ confidence, and this, together with bargain property prices and a stronger pound, is leading to an increasing number of buyers coming back to the market in search of opportunistic bargains.
According to broker Cushman and Wakefield, property sales in 2013 tripled in value to €322 million compared with the previous year, showing just how the country has started to recover as the economy has improved.
This injection of confidence appears to be rubbing off on British buyers. We’ve seen an increasing number of people enquiring about the country over the last few months, and it’s currently third on our list of hot spots, after Spain and France.
Prices still declining
Figures released at the end of 2013 show that property prices in the Algarve and across Portugal have decreased to an unprecedented level, and experts are predicting that the Algarve market in particular will reach its lowest point at the end of this year, before the economic recovery in Europe feeds through.
Before the global downturn, property prices in Portugal were among the highest of the countries popular with British buyers, but values have really declined during the financial crisis. For example, according to the property website Meravista, the average price of a home in the Algarve is 32 per cent cheaper at the moment than a home in the UK.
And homeowners are now selling their properties in line with valuations from banks rather than by up to 20 per cent more, which has been the case in the past. Average prices in the Algarve are around five per cent higher than the bank valuations, while in Portimão and Olhão, also popular with British buyers, true prices are actually at or below bank valuations.
The fact that estate agents and home owners are meeting or undercutting the values set out by the banks demonstrates that the market has reached a significant low. And it presents a great opportunity for people who are planning to invest.
Golden Visa proving a success
The Portuguese government is keen to promote foreign homeownership to help cure the country’s economic woes, and the relatively new Golden Visa scheme appears to be working well. Introduced in October 2012, the scheme 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 able to apply for a full Portuguese passport. Some agents have been selling investment packages which include a visa and property with a guaranteed rental income, in the hope that this will help to reduce the stock of unsold holiday homes that were built before the recession took hold.
The Golden Visa seemed to attract little interest at first, but it has been growing fast after the requirements on duration of stay in Portugal were cut from 30 to seven days a year. Eight out of 10 golden visas have been given to Chinese nationals, according to the country’s professional association of real estate agents, with the remainder given to investors from Russia, Brazil and Angola. According to Colliers International, a real-estate consultancy, the scheme helped the number of dwellings sold in 2013 to increase by almost 70 per cent. With further growth predicted, this can only be good news for the Portuguese property market.
Stronger pound means more bang for your buck
A boost for British buyers has been the growing strength of the pound, providing them with more buying power and more pounds in the pot. At the time of writing, £1 is worth around €1.21, which is a big improvement on last summer when you could only get €1.14. And for someone considering a home in Portugal worth €200,000, the property now costs £165,289 compared with £175,439 at the start of August 2013, which means a buyer has around €10,150 more in the kitty than at the start of August 2013.
It may come as no surprise that Portuguese lenders have reduced their lending capacities over the last few years, but they’re still willing to lend to foreign nationals, especially if you have a decent deposit and you can demonstrate that you have a sound financial profile.
It’s possible to borrow up to 80 per cent of the property’s value and rates are pretty reasonable, starting at 4.74 per cent for a variable deal with a maximum 60 per cent loan-to-value, and 5.89 per cent for up to 65 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.
Lenders will now require more details about your income and outgoings, so it’s important to have your accounts in good order. They’ll also use the debt-to-income ratio, which establishes whether you can afford to maintain the mortgage repayments.
It’s also 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. And it costs nothing.
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.
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
Portuguese mortgage best buys
|Source: Conti. Rates correct as at 28/3/14. 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.|