Getting a Mortgage In Portugal

Portugal is a popular destination for many UK tourists both for annual holidays and as a location for a second home or retirement. But how do you get an overseas mortgage in Portugal and set up a home there?

In this article, we look at the ins and outs of getting a mortgage in Portugal as a UK resident, how to work out what you might be able to borrow, and where a broker can add value in the process by helping you find the right lender and the best deals.

Can UK residents get a mortgage in Portugal?

Yes, you can, even if you don’t live in Portugal or have Portuguese citizenship. The beautiful scenery and affordable property prices can make it an attractive option for many people, either for a family holiday home or as a place to buy an investment property to rent out.

Rules, lending criteria and deposit requirements

Portugal has an excellent reputation for welcoming non-residents, and the mortgage application process is relatively straightforward, even for people living outside the country. Just like with any mortgage, you’ll need to meet a lender’s eligibility criteria, including your employment status and income, your credit history, the property type and your personal circumstances.

For non-residents, most lenders will ask for a 30% deposit as a minimum. If this feels a little daunting, don’t let it put you off – talk to a specialist overseas mortgage broker instead about your circumstances, and they may be able to find a lender willing to stretch their maximum loan-to-value ratio. They might also suggest other ways to raise the cash, for example, by releasing equity in an existing property.

The average term for a Portuguese mortgage is 25-30 years. If you want to repay your mortgage early, you will have to pay a charge of 0.5% on a variable-rate mortgage and 2% on a fixed-rate mortgage.

Before applying for a mortgage in Portugal, it’s a good idea to check your credit reports, even if you don’t think there will be any issues. It’s always prudent to check the information that’s held about you to give you a clear picture of where you stand and to give yourself the chance to correct any inaccuracies. The last thing you want is to have a mortgage application declined because of a simple error.

How much can you borrow?

Whereas in the UK, maximum mortgage amounts are determined based on annual income multiples, in Portugal, they’re calculated slightly differently. Portuguese lenders look instead at monthly affordability, adding up all of your eligible income and comparing this to the amount of money you have committed to existing debts such as rent, mortgages, credit cards, and loans.

This figure is your debt-to-income ratio and is expressed as a percentage – for example, if you have a monthly income of £4,000 and your financial commitments total £1,000, this would be a debt-to-income ratio of 25%. Remember that the repayments on your pending mortgage and associated costs, such as building insurance, will be included in the calculation.

Most lenders in Portugal want your debt-to-income ratio below 35%, sometimes below 30%—the exact figure will depend on the lender and your other circumstances.

Your broker can provide more bespoke estimates of what you’ll be able to borrow, but for an initial illustration, why not use our repayment calculator below? Simply enter a few basic details, and we’ll give you an idea of your mortgage repayments.

Once this is calculated, you can compare this amount to your monthly income to see if your total outgoings are below the required debt-to-income ratio.

How to get a mortgage in Portugal

If you’ve decided on Portugal as the location for your new property then there are a few important steps to take before you choose your holiday home.

Which lenders offer mortgages for properties in Portugal?

There are quite a few options for mortgage lenders, including banks based purely in Portugal and international banks such as Santander and HSBC. Lenders open to mortgage applications from UK residents include the private bank Novobanco and Millennium BCP, one of the largest banks in Portugal.

Terms and rates will vary between lenders, and this, along with potential language barriers, makes a broker vital if you want to find the best Portuguese mortgage lender for you.

What are the typical interest rates?

Mortgages in Portugal are linked to the Euribor, the Euro Interbank Offered Rate. You can expect to pay the Euribor plus a bank margin of around 1-2%. This will vary between lenders, but your broker can help you shop around.

The Euribor has been steady and low over the last 12 years and has actually been negative for much of this time. Although it has started to climb recently in response to surging inflation across Europe, the 6-month Euribor, the rate used for most mortgages, only tipped 2% in October 2022, meaning mortgages in Portugal are still affordable.

As in the UK, you’ll have a choice between a variable rate mortgage, linked to the Euribor and adjusted every 3-6 months and a fixed rate.

It is possible in Portugal to get a fixed rate for just a few years or, in some cases, for the entire term of the loan, although you will pay higher rates for fixing for this length of time.

Can you get a buy-to-let mortgage in Portugal?

In the UK, if you plan to rent out a property, you need a specialist buy-to-let mortgage, which normally involves a premium. In Portugal, however, there are not the same restrictions on how you use your property, and so the buy-to-let mortgage product that we’re familiar with in the UK doesn’t exist.

If you do buy a property in Portugal and decide to rent it out, you won’t have to change your mortgage or negotiate terms, but there are a couple of points to bear in mind. You will have to keep the rental deposit in the bank account associated with your loan, and you will have to include a clause in the contract that says that the property is mortgaged.

Regulations in Portugal tend to sway towards protecting the interests of tenants over landlords, and this makes sure that your tenant is fully aware of the potential risk to their tenancy should you default on your mortgage repayments.

Speak to a broker who specialises in Portuguese mortgages

While having a broker with experience in the Portuguese mortgage market is invaluable, it can be difficult to find someone with that level of specialism. Fortunately, our broker matching service is here to help.

Give us a call at 0330 818 7026 or make an online enquiry now, and we can take a quick look at your needs and aspirations and choose just the right advisor for you—someone perfectly placed to help you secure the mortgage you want. We’ll arrange a chat so you can find out exactly how they can help you, with no obligation.