Portugal is one of Europe’s oldest nations, an ancient kingdom defended by hilltop castles and dramatic walled towns. While its western Atlantic dunes are still relatively unknown to those outside the surfing community, the calmer waters of the Algarve offer the quintessential laidback beach experience.
Purchasing a property in this stunning cultural country is a relatively straight-forward process and all laws and covenants that need to be followed are transparent and easy to understand. A big lure is the fact that there is currently no inheritance tax however capital gains tax for non-resident property owners is quite high.
Always make sure that the property agent you use is registered with the Instituto da Construção e do Imobiliário (INCI) and has a valid government licence. Get professional and independent legal assistance from a local English-speaking Portuguese lawyer so that you know exactly what is going on and can have everything explained.
What type of Portuguese property is available – and at what cost?
Buying in Portugal will afford you the opportunity to purchase totally different property styles than you’d find in the UK. What’s more, they’ll often be much larger than you could perhaps afford at home.
As with many European countries, Portugal has a large rural population which translates into a good supply of farm and country houses or ‘quintas’, so-called as they were traditional rented out for one-fifth of the value of what was grown on the land.
Prices vary enormously. An isolated single story quinta ruin with 10,000 square metres of land in the hills of Portugal’s Blue Coast can be found for as little as €20,000, while a fully renovated five-bedroom farmhouse in Lagos with swimming pool will be nearer to the €3m mark.
A sun-splashed villa is often the dream when it comes to overseas property – and Portugal offers no shortage of these in all regions and at all price points. Portuguese villas tend to lie on the outskirts of towns or within small developments and come with a pool, terrace and gardens.
Again, prices vary. An older four-bedroom villa close to Tavira for example (away from the frontline coast) could cost in the region of €500,000, whereas it would be easy to find a luxurious beachfront six-bedroom villa in Vale do Lobo on the market for between €6m and €8m.
Townhouses are a great alternative to villas. They offer plenty of living space internally, while externally you’ll only have a terrace and roof-top area to look after rather than the often extensive gardens of a villa. An older style three-bedroom townhouse in Nazare will cost in the region of €200,000, while a new-build townhouse on an upmarket development in Albufeira will start from around €450,000.
The majority of Portuguese developments will also have apartments of varying sizes, purpose built for the holiday market. These offer a great ‘lock-up-and-leave’ option for those in search of a holiday let. With communal facilities including swimming pools and gardens, maintenance costs are also shared which is a popular draw among Brits. Apartments can also offer a sense of community and – if you are lucky – even some readymade friends.
The downsides of buying in an apartment block include over-crowding at peak times of year and the fact your next-door neighbours (which can change frequently during holiday season) are in such close proximity.
Prices of apartments vary hugely depending on location, size and level of finish. A two-bedroom coastal apartment in Carvoeiro for example, will cost around €300,000 while a four-bedroom luxury apartment in Porto with a river view could be nearer to the €1m mark.
A resort property on a golfing leisure complex in Portugal is another option for the melting pot. Even if you don’t play golf, the stunning views and excellent facilities associated with these high-end developments mean they can represent excellent investment potential.
A five-bedroom villa in a prime position on a resort such as Villamoura will come at a tidy sum – in the region of €3m. But a two-bedroom apartment in the Troia Beach Resort will be much less, ringing in at around €450,000.
Specific to Portugal are quirky Swiss style chalets built by Portuguese who had spent time in Switzerland and Germany. There are now established companies in Portugal you can commission to build these timber houses for you. And at an assembly time of around six-weeks, a plot of land may be worth considering instead!
How can I finance a property in Portugal?
If you have cash to buy your Portuguese home – either through existing funds or a remortgage of your UK home – you can move right on to our section on currency exchange. If not, you will need to consider your borrowing options.
The first thing to note is that you won’t be able to take a mortgage from a UK bank to pay for a home that lies on different soil. However, non-residents are permitted to take Portuguese mortgages against Portuguese property. An overseas mortgage broker based in the UK can help you search for the best deals from Portuguese banks.
The Portuguese mortgage market is slower than the UK’s and the process can be even more rigorous, so ensure you are organised with all the right paperwork in place. You’ll need at least a 20% deposit, although some banks require up to 35%. As in the UK, the bigger cash deposit you have, the easier you will find it to secure a loan at a decent interest rate. Portuguese mortgage rates can be some of the lowest in Europe, although tend to be priced on a variable basis.
Unlike other European countries Portuguese loans can cover work required on a property. You will need to prove your ability to pay the loan back and rental income cannot be included.
Also, bear in mind it is good practice to borrow in the same currency you intend to repay the loan in. This avoids currency fluctuations moving against you. For example, if you are paying your mortgage with your UK salary, borrow in sterling. If you are funding your purchase through renting your Portuguese home out, borrow in euros.
What other costs are involved?
Home-buying charges vary in Portugal, according to whether it’s a new-build or a re-sale property and whether you will be a permanent resident. As a rule of thumb, you should allow up to 15% of the purchase price for costs and fees. These charges are broken down as follows:
- Tax
o VAT (IVA) for new-build property is payable at the standard rate of 23%. It’s usually included in the property price.
OR
o Transfer Tax (IMT) for resale property. The valuation of this tax is based on a sliding scale which can be between 0% and 8% depending on the declared value (rather than selling price) and whether you intend to live in the home permanently.
- Bank charges
- Notary fees
- Surveyor fees (optional)
- Legal Fees
- Deed registration fee
- Utility fees (new-build only)
Who do I need to help me with my purchase?
A lawyer: In the UK, the nature of our conveyancing process means that using a solicitor is the norm. This is not always the case in Portugal, so the one appointment that’s highly recommended is a good independent lawyer who speaks English (if you don’t speak Portuguese) and will work for you and protect your interests alone.
When making your choice, ensure your lawyer has no connection with the agent or developer. Even if your agent recommends a brilliant one to you that ‘they always work with’, be wary. It is possible they have a financial relationship. One way around this of course, is to engage your lawyer first. Check the AIPP website where you will find a list of specialist property lawyers based in either the UK or Portugal.
An agent: Agents in Portugal are legally required to be licensed and hold professional qualifications but they are not regulated by the state. Choose one that’s a member of a trade association, such as the AIPP which will mean you get recourse to a property ombudsman and financial compensation.
Bear in mind it’s not uncommon for Portuguese agents to ask you to sign a document before they show you any property at all. This protects their commission in case you see it through another source.
Your notary or notário (a public official): Mandated to ensure legal affairs are conducted properly and the correct taxes are paid, notaries should not be confused with lawyers. They do not act for either the vendor or the buyer – and are usually local to the area you are purchasing in. A recommendation to a notary by your agent or your vendor will suffice, although you are free to choose.
A surveyor: A surveyor or agrimensor is not a legal necessity but if you are buying a home that has either had a lot of building work or needs a lot of work done it is good insurance against nasty surprises. If you’d commission a survey on the property in the UK, do the same in Portugal.
A removal firm: Finally, the move itself may require a removal firm if you are taking your possessions with you. As with the UK, it is wise to choose an insured company who are members of an association. Specialist overseas removal experts will lead you through the process and advise you on storage, sea transit and regulations you may be unaware of when transferring your goods to Portugal.
What can I expect from the legal process?
The Portuguese legal process, when it comes to property can take as little as a month. But, depending on the property, documents required and level of service, it could take up to five.
Here is a six-step plan of what to expect:
Step One: Once you have had an offer accepted you may be asked to sign a reservation agreement which, although not legally binding, does demonstrate your commitment to buy.
At this point, the seller should remove the property from the market. You may also have to stump up a small deposit as a gesture of intention but this should be retained by your lawyer – not handed over to the agent or vendor.
Step Two: Your lawyer will carry out checks to ensure the property is free from any existing debts – and that the seller is, in fact, the legal owner of the property and has the right to sell it.
Relevant and various documents including tax certificates, local council licences and any planning or project approval will also be collected.
If you haven’t already, this is also when you’ll need to obtain a tax identity number (NIF) from the local tax office. This is similar to a National Insurance number and you’ll need it to open a Portuguese bank account.
Finally, a survey will be carried out and builders consulted if you are planning any building or renovations.
Step Three: If you are happy to proceed after the legal checks and surveys, this is when you move onto the preliminary contract or contrato de promessa de compra e venda (CPCV). This is very similar to an exchange of contracts in the UK – and it’s also legally binding.
A non-refundable deposit is now required, normally of 10% of the purchase price but it can vary. If the vendor pulls out of the sale once this contract has been signed they’ll have to pay you twice the deposit as compensation.
Step Four: Main purchase funds will now need to be put in place. If you are using a mortgage, the lender will arrange for the funds to be sent directly to the notary or vendor. If you’re paying with cash, your bank or currency exchange company will organise the transfer.
Step Five: Around four weeks after you have signed the CPCV, you will be invited to the notary’s office along with your lawyer for the completion or escritura de compra e venda – where the deeds of sale or escritura are signed. If you are unable to travel to Portugal, you must appoint power of attorney to your chosen representative to sign on your behalf.
The balance of money owing will be transferred to the vendor and all other associated costs paid to the notary. And this is when you get the keys.
Step Six: Once the deeds are signed, and the notary has registered you as the new owner, you need to ensure your name is lodged at the land office and the local tax office.
Note: if you are buying a new-build property you may be asked to pay the purchase price in key stages throughout the build, rather than make a one-off payment on completion. You will be charged each time you make a cash transfer so shop around for the cheapest way to do it – this could be a FX company rather than your bank. Make sure you receive guarantees for each payment