to the Algarve who decide to invest in a holiday or future retirement
home may be surprised to find that there are fewer choices here than in
their home country for obtaining a mortgage.
There are several reasons for this, including the fact that despite the
opening up of the domestic market in recent years following reductions
in interest rates few Portuguese banks will consider a mortgage application
from foreign non-residents, although this may change in the future.
Also the legal system for security loans on a property is cumbersome,
implying a slow and costly process for foreign mortgage lenders. This
is the main reason that only a very few non Portuguese banks provide mortgages
in the Algarve.
There are three banks that dominate the foreign mortgage market: a well
known British offshore bank with a representative office in the Algarve;
a Danish offshore bank and the London branch of a Portugues bank. Besides
that there are some mortgage brokers who intermediate in obtaining a mortgage.
Normally an offshore company is formed to hold title to the property in
Portugal. The banks then secure the loan on the shares of the offshore
company. The offshore route is a common form of property ownership and
has several tax advantages that may outweigh the disadvantage of paying
annual management charges ( normally in the range of £ 500 - £ 1000 each
year ). An accountant or specialist tax advisor can provide advice on
specific details of off-shore company ownership. See my article on offshore
Mortgages are available in a variety of European currencies as well as
in US dollars and in the near future Abbey National will issue a EURO
mortgage to be expected at approx. 5%. It is difficult to find a fixed
rate mortgage in any currency, so you will probably be offered a variable
rate pegged at around 1,5 - 2% over the benchmark base lending rate of
the chosen currency. As an example currently sterling mortgage rates are
in the range of 9-9,5% and the D-mark rates are in the range of 5-5,5%.
The maximum loan available relative to the value of the property is generally
limited to 75% of the valuation value or sales price whatever is the lowest.
Valuations are carried out by experts of the respective banks.
Anyone applying for a mortgage will normally be required to provide proof
of income, whether from employment, business, investments or pensions.
Tax returns will also be required, although "non-status" mortgages are
available in certain cases.
Portuguese nationals and anyone with the official " Residencia " card
and a history in this country will have a wider choice by contacting a
branch of one of the many Portuguese banks that have multiplied all over
the Algarve in recent years. Following massive reductions in interest
rates in the last three years, local banks now offer mortgages around
or below 6% in Escudos or even between 3 and 4% for young starters in
the market, with the rate often fixed for a period. Some provide mortgages
on other currencies as well. Up to 90% loans are common, but tax returns
are always required from applicants.
Mortgages can also be arranged through a small number of brokers and financial
advisors, some of which will charge fees. This could be a good route to
take in order to find out all the available choices and your broker should
advise on the mortgage which best fits your pocket and your property.
Finally before making an application for any mortgage it is wise to ascertain
and compare the level of associated costs in order to budget accurately
for your purchase. Banks will pass on legal costs to borrowers and as
legal fees in Portugal generally higher than elsewhere these costs may
be considerable and a lawyer can provide some estimate prior to committing
to a purchase. Also each bank charges for surveying and valuing the property.
Despite the cost involved this service provides a useful check on construction
quality and confirms that you are paying a fair market price for your
In order to help you I will provide details of the following well-known
Susan Hart or Linda Kenny
Edificio Cor de Rosa r/c Esq.
EN 125 Quatro Estrades
8125 Quarteira Portugal
Tel: +351 (089) 397900
Fax: +351 (089) 397889
76 Main Street, PO, Box 143
Banco Totta & Açores
Branch in London:
a.o. Simon Perks
68 Cannon Street
London EC4N 6AQ
Tel: +44 (0) 71 2361515
Fax: +44 (0) 71 2367717
Web site: http://www.bancototta.co.uk
a.o. Sr. Antonio Prazado Alves
Tel: +31 (0)20 6232746
Fax: +31 (0)20 6389941
Conti Financial Services
a.o. Simon L. Conn
204 Church Road
Hove, BN3 2DJ
Tel: +44 (0)1273 772811
Fax: +44 (0)1273 725789
Web Site: http://www.conti-financial.com
Aditus Real Estate Finance
a.o Trishell Gill
Stª Barbara de Nexe
Algarve, Portugal, October 1999.
Robert M.L. Snapper