But with so many potential impacts to the non-resident mortgage market going forward, it is no wonder that questions are being asked by future investors in Portuguese properties about what has changed and what the future holds.
First and foremost, Chestertons Portugal and O&O Quinta do Lago would recommend, as the mortgage process is a little different compared to your home nation, that buyers seek professional advice when applying for a mortgage to get the best results and terms.
Many would assume that the effects of Covid19 or even Brexit, would have led to the main changes in the non-resident mortgage market in recent periods. But whilst they have had an impact, they are not the main driver to change.
The main driver to a change in the mortgage market as whole is the introduction of the tighter ECB guidelines in 2018, limiting loan to values, tightening debt to income ratios, and reducing terms.
Perhaps the resident market will see the biggest effect of these changes when the credit institutions start to reflect these new guidelines, seeing the end of loan-to-values (LTU’s) as high as 90% and the shortening of mortgage terms from the current 50 years available from some institutions.
Within the non-resident mortgage market, many of the changes have already been affected, as the impact was not so great, because this market has always been seen as slightly higher risk by the credit institutions, and as such the terms have always been a little shorter and the LTVs lower.
As we have said, the good news for the British market is that Brexit alone has had very little effect on the non-resident mortgage market.
Institutions continue to lend to the Britons, just as they have been offering loans to many non-EU nationalities, such as the Americans, Swiss and others for some time.
The recent strengthening of the British pound will help with the tighter debt-to-income ratios implemented by the 2018 ECB guidelines and many of the financial institutions have seen a significantly increased level of quality in new clients.
It is possible as result of Brexit there has been an increase in multicurrency accounts, with banks responding to the desire to hold funds with them in Portugal in both Euros and Pound Sterling.
Most institutions will tell you that the number of applications for non-resident mortgages today are lower than 10 years ago. But, despite this, they still come in with a good rhythm, having witnessed a steady climb over the last two years.
There is still a high demand from non-resident buyers in Portugal, with an increasing tendency to buy property for a second home or to finance a change in their permanent home, as opposed to finance for a property intended for rental with the owners paying an occasional visit for vacations or short breaks.
The most topical affect on the non-resident mortgage market is almost certainly the effects of Covid19. Although it most likely that the larger impacts of this have not been felt yet, there have most certainly been some so far.
The application process has almost certainly got longer; clients unable to travel to Portugal to enter and sign the required paperwork, seeing banks having to adapt their procedures on how they accept paperwork; key staff in branches and on credit committees having to work from home, seeing application approvals being delayed; institutions fearing of income stability of clients going forward, due to extra instability of full time employment, and lower incomes in 2020 compared to 2019, which often leads to clients that close on the debt-to-income ratios being refused credit.
But there is always a silver lining in the darkest of clouds.
So, on a more positive note, for the right client who is willing and able to wait a little longer than usual, they will still be able to achieve interest rates as low as 1% of 12-month Euribor (at -0.483 as of 26 Feb 2021), terms of 30 years up to the age 75 or in some cases 80 years, and in most cases for non-residents no life assurance is required at lower LTVs, although banks still prefer to see it.
The banks in general are still focused on the simple repayment mortgages. But there are green shoots of recovering with encouraging early signs appearing of banks varying the mortgage products with the potential of part interest only mortgages.
This allows for between a third and a half of the loan with an interest-only element lowering the monthly payment, which puts the remaining capital due to be repaid at the end of the term or at repayment.
What will you need for an application?
Of course, each application and client brings different variables to the table, but on a typical application you will need to be prepared to provide the following:
- ID / Passports for all applicants
- Proof of address for all applicants
- Last tax declaration for all applicants
- Bank statements showing transactions for the last 3-6 months, for all applicants.
- Proof of debt on all mortgages, loans and credit cards, for all applicants
- Current credit report issued by the correct authority depending on country of principle residence, for all applicants
- The latest 3-6 months’ pay slips for all applicants
- Proof and confirmation of current employment, for all applicants
- The last 2 years of official accounts and declaration from the accountant responsible.
The CBRE Portugal Research team, part of CBRE Global Research - a network of preeminent researchers and consultants who collaborate to provide real estate market research, econometric forecasting and consulting solutions to real estate investors and occupiers around the globe—reported on the Portugal Real Estate Market outlook for 2020/2021 in which they said, “Banks maintain high competition for mortgage lending. The volume of housing credit granted in 2020 increased 7%in 2020 whilst the sales volume stabilised.
“We expect banks to maintain an active mortgage lending policy in 2021, although with a more stringent analysis of the client’s repayment capacity, continuing to drive housing purchases.
“In addition, an increase in working from home made the house more important, including among the Millennial generation, creating new momentum in demand”.