Property in Portugal fulfils lifelong dreams of holidays at home but with plenty of hot sunshine, the pool, the beach and golf right on the doorstep.
As with all property purchases the world over, it’s essential to work out your specific budget and criteria for buying, as well as consider what things are important to you for an ideal holiday home. It’s also helps to know what to expect from the purchase procedure in Portugal beforehand.
The following tips could help you to avoid any last-minute surprises:
- Prepare a finance plan – This should include current information from banks and lending institutions so that you are well informed of lending rates and the products currently available to you
- Get a lawyer (advogado) – An advogado is the equivalent of a lawyer, barrister or solicitor in the UK and can provide you with vital information and perform the searches you need, ready for a smooth purchase. Check that he/she is qualified and has a registered number (cédula number)
- Check the plans carefully – This is most easily done by your lawyer who will check that your property’s plans held by the local authority actually reflect the existing construction. This avoids any misunderstandings and ensures you are paying the right amount in property taxes
- Get a full report on title – Your lawyer should request a report on the title deeds, stating that the property is free of any charges (or that such charges will be dealt with before completion of the Final Deed)
- Check on planning rules in the area – It may be worth knowing about these beforehand in order to avoid any nasty surprises
- Documentation – Bear in mind that residential property must legally have the following documents: Habitation Licence for all property constructed after 1951, an official record at the Land Conservatory and a Caderneta Urbana (detailed description of the property) from the Tax Office
The buying process in Portugal
UK citizens can buy property in Portugal without any restrictions but the process is not quite the same as in the UK. Once you’ve found your dream holiday home, Portugal has a simple though specific buying process:
- Promissory Contract (contrato de promessa de compra e venda) is signed by you and the seller and a deposit of 10 – 25 per cent of the purchase price is paid to take it off the market while the lawyer conducts searches and checks on any mortgages or debts on the property
- The Final Deed (escritura de Compra e venda) is signed, ownership is transferred to you and the transfer is recorded at the Land Registry. As with the promissory contract, you will need to sign the Final Deed in front of a notary (notario)
It’s wise to set aside 15 per cent on top of the purchase price to cover transfer taxes, notary fees, stamp duty, mortgage arrangement fees and surveyor’s fees. A power of attorney could set you back a further approximately £200 if you are unable to be present for the signing of the Final Deed.
If you are building a property, 17 per cent VAT is chargeable on all your building materials and builders’ costs.
Broken down, the buying costs are as follows:
- Property transfer tax (IMT) is payable on properties of over €92,407 – this is paid on a sliding scale from 2 to 8 per cent depending on the price of your property
- Stamp Duty is at a fixed rate of 0.8 per cent
- Notary, administration and registration fees are between 1.5 and 2.5 per cent of the purchase price
- Legal fees are between 1 and 2 per cent of the purchase price
- Estate agency fees can amount to around 5 per cent of the property’s purchase price
- Money transfer – for many, the most cost-effective way of moving your sterling to Portugal for payment in Euros is by using a currency exchange agency. Bank charges fluctuate daily so exchange rates can have a great impact on your overall cost. Specialist currency exchange firms can save you up to 4 per cent of the cost by fixing a rate beforehand with you, which could result in a better deal than if you were to transfer through your bank. For example, on a £100,000 exchange, a currency specialist could save you up to £4,000 purely by securing you a better rate than at a high street bank
Euro mortgages are available for foreigners in Portugal and may fund between 60% and 80% of the property price but may vary according to the bank and your particular financial background. Both repayment and interest only mortgages are normally available with fixed and variable rate options.
The maximum loan term spans 30 years and the minimum loan value is set at £20,000. Bear in mind that lenders will not normally take into account rental income when calculating your level of borrowing.
Some off-plan developments offer buyers instalment plans over a period of years. Charges vary according to developer and repayments are index linked. Although these deals can sometimes be beneficial, it may be advantageous to run them past your lawyer first and shop around for the best mortgage or other finance arrangement to suit your needs.
If you own property in your own country and would like to borrow against an equity release plan, this could be an alternative option.