Portugal is a popular destination for many UK tourists both for annual holidays and as a location for a second home or for retirement. But, how do you go about getting an overseas mortgage in Portugal and setting 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, where a broker can add value in the process by helping you find the right lender and the best deals.
In this article:
- Can UK residents get a mortgage in Portugal?
- Rules, lending criteria and deposit requirements
- How much can you borrow?
- How to get a mortgage in Portugal
- Which lenders offer mortgages for properties in Portugal?
- What are the typical interest rates?
- Can you get a buy-to-let mortgage in Portugal?
- Speak to a broker
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.
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Rules, lending criteria and deposit requirements
Portugal has a great 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, which will include looking at 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 either 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.
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 it’s 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 known as 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%. Keep in mind that the repayments on your pending mortgage, along with associated costs such as buildings insurance, will be included in the calculation.
Most lenders in Portugal will want your debt-to-income ratio to be below 35%, sometimes below 30% – the exact figure will depend on the lender and your other circumstances.
Your broker will be able to 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 what your mortgage repayments might look like.
Once this is calculated you can check this amount versus your monthly income to see if your total outgoings are below the required debt-to-income ratio.
Mortgage Repayment Calculator
Our mortgage repayment calculator can tell you how much your mortgage will cost you each month and overall. Enter the amount you’re borrowing, the term length and interest rate, and our calculator will do the rest.
Total amount paid at end of term:
Get started with an expert broker to find out how much they could help you save on your mortgage repayments.
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.
Get a NIF number
In order to carry out any financial transactions in Portugal, including buying a house, you’ll need a NIF, short for Número de Identificação Fiscal, sometimes also called the contribution number – Número de contribuinte.
This is a nine digit individual tax identification number and you won’t be able to open a bank account or buy a house without it. Your NIF can be obtained in person from a local government office, known as a Finanças, or via your tax representative or solicitor.
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Which lenders offer mortgages for properties in Portugal?
There are quite a few options when it comes to mortgage lenders, including banks based purely in Portugal and international banks such as Santandar 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 alongside potential language barriers make 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, and so you can expect to pay the Euribor plus a margin applied by the bank 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 a negative amount 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.
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Can you get a buy-to-let mortgage in Portugal?
In the UK, if you plan to rent out a property then you need a specialist buy-to-let mortgage, normally paying 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 know how to go about finding someone who has that level of specialism. Fortunately our free broker matching service is here to help.
Give us a call on 0808 189 2301 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 free chat for you, and you can find out exactly how they can help you, with no obligation.