13 September 2017
How The Portuguese Market Is Bearing Up To Brexit
THE CONSEQUENCES OF BREXIT ON THE PROPERTY MARKETS ACROSS EUROPE INITIALLY DETERRED BRITISH BUYERS BUT OVER THE PAST YEAR, AS IT HAS BECAME CLEAR THAT THE FINER POINTS WILL NOT BE KNOWN FOR SOME TIME, THEY ARE RETURNING. MIRANDA JOHN, INTERNATIONAL MANAGER AT SPF PRIVATE CLIENTS, DISCUSSES THE PORTUGUESE MARKET.
Since the decision to leave the EU, banks specialising in lending to British buyers have not fundamentally changed their policies but affordability is key with some introducing ‘stress’ tests to ensure borrowers can withstand currency fluctuations. In Portugal, incentives such as the Non-Habitual Residency and Golden Visa schemes are already in place and have done much to appeal to a wide range of international buyers while invigorating the housing market.
Finance may be essential to a purchase or considered because the exchange rate is unfavourable at the time of completion. It is often assumed that the same lending is available in Portugal as in the UK but this is not the case. UK high street banks cannot take a charge on property in Portugal so the only options are local lenders or for higher value property (€3m-plus) private banks may consider finance. Portuguese lenders do not offer standalone buy-to-let mortgages as borrowers need to meet the bank’s affordability criteria based on income with potential rental income not included. Furthermore, there is virtually no remortgage market so changing lender and capital raising are not usually possible. It is therefore vitally important that you have the best product available.
For standard mortgages of up to €2m, Portuguese banks are usually the only option. Lending is done on a repayment basis only, with lenders requiring that borrowing is repaid by the age of 75. Loan-to-values tend to be 70 to 80 per cent although this can vary. Income is strictly assessed based on net income as confirmed by tax returns and there is close scrutiny of bank statements as affordability is the main concern. Most banks work on an average of three years’ income and require current debt and the proposed loan to be between 30 to 40 per cent of net income.
Variable rates which track Euribor – the Euro equivalent to Libor – are usually the preferred choice as long-term fixed rates can be more expensive. That said, shorter-term fixed rates are becoming more readily available as borrowers can lock into the historically low rates on offer.
An alternative option is to raise finance secured on other assets, such as property in the UK. However, there is a currency risk involved and it is important to seek advice from a specialist international broker who will guide you through your options.