Buying Property in Portugal
10 October, 2017
We spend a lot of our time speaking to people who are buying property in Portugal, whether as a holiday home away from the UK, or to move permanently, to live or retire in the sun, or start a business in the Portuguese resorts.
We have put together this handy guide for those of you buying Portuguese property, to give you a basic idea of what is involved, how to avoid the potential pitfalls, and some handy contacts to help your purchase go smoothly.
The guide is split into the following sections, which you can click directly to, for your bitesize guide to buying in Portugal. Each section includes contact details you will find useful. These are simply contacts we have come across over the years and trust, rather than paid advertisements.
Most British buyers of Portuguese property, will be looking at a property in either the Silver Coast, or the Algarve. Prices in both areas have of course fallen since the global financial crisis, but Portugal is much less over-developed than Spain, so the market has remained more robust than in Portugal’s Iberian neighbour.
The Algarve is the traditional bolthole for foreign buyers in Portugal, with 2,000 square miles stretching from the Atlantic coast along to the Spanish border. There are 16 municipalities, and a great variety of different towns, some very upmarket housing the rich and famous, and some more typical ‘Brits abroad’ towns with neon strips full of young revellers by night. There is something for every taste and budget in the Algarve, so before looking at your location in detail, do some research on the different costs and lifestyles available.
The area can be broadly split into East, Central and West regions, and is perhaps most famous for its excellent golf courses, as well as the fabulous climate and easy pace of life.
The 16 municipalities, all within the district of Faro, are Albufeira; Alcoutim; Aljezur; Castro Marim; Faro; Lagoa; Lagos; Loulé; Monchique; Olhão; Portimão; São Brás de Alportel; Silves; Tavira; Vila do Bispo; Vila Real de Santo António.
You probably already have some idea of where you are looking to buy, but to give you an idea of what is on the market, here are 5 very different properties in different parts of the Algarve, all listed for around €250,000 in July 2014.
This 3 bedroom refurbished villa is just a short walk to the beach and all amenities in Praia da Luz close to Boavista golf course. Praia da Luz is a resort that has seen much development in recent years and it has become a firm favourite for the English ex-patriot community. It has retained its appeal and attractiveness by being held to a relatively low-rise landscape.
Albufeira is perfect for families, couples and singles of all ages and is central for all the tourist attractions, with the added bonus of a short transfer from Faro airport.
Within walking distance of the old town and beach in Albufeira, this 2 bedroom apartment with views over the marina is listed as fully furnished for €250,000. Further inland the same budget would buy a 2 bed detached villa.
An end semi-detached townhouse in a small private condominium with roof terrace, shared swimming pool, and 3 bedrooms within a small private enclosed condominium in Conceicao, adjoining the popular resort of Cabanas. Cabanas is a delightfully ‘chilling’ place where any sense of ‘urgency’ simply disappears, as we look further east towards the Spanish border.
The Silver Coast is the stretch of coastline situated on the west coast. Its exact boundaries are subject to debate, but this area roughly stretches from south of Porto, down as far as Peniche and includes some of the best beaches in Portugal.
On average, prices are not as high as in the Algarve, and the region is less busy, with countless picturesque towns near to the famous beaches, and an improving reputation for golf courses to compete with the Algarve.
Here our budget buys a detached 3 bedroom, 3 bathroom villa in gated condominium in Foz do Arelho, situated close to the beach. The villa is located close to local amenities including shops, bars, cafes and restaurants and within a 1 hour drive of Lisbon airport.
Before heading over to Portugal on a viewing trip, it is a good idea to make some appointments with reputable agents who have suitable properties on their books for you to view. You will probably have decided on which area you are interesting in buying in, before you do – so do some extra research to find out who you would like to view with. In Portugal, the same properties are often listed by multiple agents, and generally it is a good idea to arrange viewing with more than one agent, as you might find the same property priced differently too.
When choosing an agent, try to find one with expertise in your chosen area. This goes without saying, but a good trading history, prompt returning of your enquiries, an up-to-date website, and your instinct when making contact, are all indicators of how helpful the agent is likely to be through the whole process.
More importantly, you need to ensure your agent is operating legally in Portugal. Check that estate agencies you approach are licensed and have an obligatory AMI number – and look for signs of permanency, especially their own premises or shop front. Recommendation also goes a long way, so look online for reviews and testimonials, then use your instinct when making initial contact: does the agent return your calls promptly? Do they sound like they want to help you through the whole process, or do they just care about getting you on a plane to view what they have for sale?
Make sure you plan some time on your trip to do some exploring yourself, without the pressure of being accompanied by a sales agent. Getting a feel for the area you are looking at, including the amenities, shops and restaurants is an important part of the process. Stay close to where you are thinking of buying, so you can find out if the quiet town transforms into a nighclubbers’ paradise every night – things you want to find out before it is too late.
Useful Links – Finding a Property
A Place in the Sun Live – UK exhibitions: www.aplaceinthesun.com
Agents: there are thousands, but we can put you in touch with a trusted few in most areas. Complete our contact form and we will be happy to help.
The 3 legal phases when buying a property in Portugal are summarised below. There is a public office in each Portuguese council – a property registrar – where a record is kept of all properties. There all properties within a council area are numbered, registered and described, and their “life” recorded. Court injunctions, mortgages, rights of way, etc must be registered at the public office, which makes the process of legal searches shorter than in the UK.
This is where the main conditions are settled between the parties (price, installments, completion deadline, un-fulfillment regime, inventory, etc). Before you sign the Promissory Contract, your lawyer will check the Land Registry Certificate, and compare it with the Tax Certificate and the Habitation License, in order to know if the purchase can safely proceed. The deposit (usually 10%) is handed over to the vendor, instead of held by the Solicitor as is normal in the UK. As a balance to this somewhat riskier deposit scheme, the promissory contract usually states that the vendor must pay back double all the sums received as a deposit, if he fails to meet the contract conditions and fails to sign the deed on favour of the buyers. On the other hand, if the buyer fails to meet the Promissory Contract’s conditions, the deposit is retained by the vendor, who is then free to sell the property elsewhere.
The time lapse between initiating the negotiations and signing the Promissory Contract can vary between just a few days (15/20) and a couple of months, depending if all the property’s documentation is made available and if all is acceptable, or if there are issues which must be carefully analysed and dealt with.
The actual purchase and sale contract, signed before the Notary, an independent Lawyer or a Land Register, in a book of Deeds filed there (your lawyer will receive a certified copy). Ownership of property in Portugal is not established by the possession of a document (Title Deed), but by updating the public records reflecting the ownership change.
The time between the Promissory Contract stage and the signing of the Deed is usually defined mostly by the parties’ financial circumstances, either related to a mortgage application by the buyer, or to an eventual mortgage redemption by the vendor. If both parties are ready to sign, the Deed can be prepared and signed within a couple of weeks after the signing of the promissory contract.
The certified copy of the Deed if filed and the public record updated, showing now the new owners. The registration is processed usually around a week after the Deed as been signed, when a certified true copy is made available by the Notary.
For this service law firms usually charge 1% plus IVA (Portuguese VAT, currently 23%), over the purchase value of the property and furniture, as legal fees. Any purchase under €150,000 usually has a minimum fee. Legal Fees are usually due at 50% upon signing of the Promissory Contract, and 50% upon signing of the Deed, as are estate agent’s commissions.
Other Taxes and expenses
Along with the basic legal fees, you should consider other purchase costs, namely taxes, Notary and Registration fees and expenses. All of these costs are only due upon signing of the Deed.
On the Taxation side, there is “IMT” Tax, which is payable once upon purchase of a property, with rates that vary between 1% for purchases up to €92,407, and 6% for purchases above €550,836 on residential properties. There is a flat rate of 5% for agricultural plots and a flat rate of 6.5% for a building plots.
Additional Notary and Registration fees, and general documentary and office expenses, depend on a several factors like instance the purchase price, and can amount up to 1.5% of the purchase price if it is a cash purchase, or up to 2.5% if there is an associated mortgage.
In order to act in your behalf before a Notary and the remaining public offices, your lawyer will need you to issue in a Power of Attorney, which would enable them to perform all the necessary formalities in your name.
Annually, the “IMI” Property Rate Tax is a yearly tax calculated applying a rate (which may vary slightly over the years) to the property’s taxabale value. This value will probably be re-assessed within a year or two by the tax authorities after this new transaction; however, this does not usually match the commercial value.
Finally, Capital Gains Tax is levied against any future sale, which will have to be declared in Portugal on a personal tax return. Taxation in Portugal has undergone significant changes recently, moving closer to a “normal” system, in which taxes are paid and evasion has been greatly reduced.
Depending on whether or not you are taking out a mortgage for your Portuguese property purchase, physically paying for your new home might be very simple, or a little more complicated.
Sending Payments to Portugal
In the simple case, where you are a cash buyer having sold a property in the UK or having the capital available from other sources, the only thing you need to do some research on is making sure you obtain the best exchange rate when it comes to exchanging your sterling to Euros for your deposit and completion payments. Or perhaps it’s not quite that simple, as fluctuating exchange rates will constantly change the amount of sterling needed to pay for your agreed Euro purchase amount.
In this case, it is worth talking to a currency exchange specialist such as Currency Index in the early stages of your purchase. Most British buyers of Portuguese property still use their bank to transfer funds abroad, even though the process is slow and expensive. Expensive by more than you would think too, as a reputable currency exchange firm can save you up to 4% on a lump sum transfer, compared to using a bank. It really can be thousands of pounds less to use a currency broker – but do ensure they are FCA regulated and operate safeguarded client accounts for your security.
The other thing a broker such as Currency Index can help with, is fixing an exchange rate for your completion payment, at the time of your deposit payment. A “Forward Contract” is used by most of our clients buying Portuguese property, to eliminate the risk of a falling exchange rate increasing the cost of the completion payment above their budget.
View our video showing how to save money on your payments to Portugal
For example, let’s look at a property purchase of €250,000 in July 2012, when the Euro exchange rate was around 1.27. That gives a sterling equivalent of £196,850, so you might imagine that your 10% deposit would be £19,685, with a completion amount of £177,165 in October.
The problem that summer, was that the Euro rate fell back significantly after July, and by October was sitting around 1.22. So in fact that completion amount in sterling, would have risen to £184,426 – an increase of over £7,000 extra to find for that completion payment.
By fixing an exchange rate in July when the deposit payment was made, this risk would have been eliminated. Using a Forward Contract does require a 10% deposit, but the remaining 90% of your sterling is not tied up for the intervening time – very useful if you want to fix an exchange rate, but are awaiting proceeds of a property sale for example, to fund the bulk of the completion payment.
The phrase we hear most often when we are asked about fixing exchange rates, is “I would never buy a property in the UK without knowing the price, so why would I want to do that when buying in Portugal?”. Fixing an exchange rate is also much simpler than it sounds, and a reputable currency specialist will be able to talk you through the options without any jargon, so you can decide the best way to buy your currency.
It is a necessary evil that you will need to exchange a large amount of sterling to Euros when buying in Portugal, yet it is an element of the purchase that many people still leave to chance – and end up paying more as a result.
To see how much difference the exchange rate makes over a period of time, here is the approximate cost of €200,000 over the last 5 summers:
Cost of €200,000
The table shows that as well as getting a good exchange rate on any particular day, timing is also important – if exchange rates are low, there is no way to magically make them better. While unfortunately nobody has a crystal ball, at least knowing which way rates are moving and why, will allow you to make an educated decision as to when you secure your exchange rate, rather than taking a chance on a potentially expensive last minute transfer. Contact us at Currency Index for more information and an informal discussion around your options.
Useful Links – Sending Payments to Portugal
Currency Brokers: www.currencyindex.co.uk
Mortgages for Portuguese Property
Like much of Europe, the lending landscape in Portugal has changed considerably since 2008. Property bubble and bust left many lenders looking at hefty losses selling on repossessed properties – so there is naturally more caution when it comes to handing out mortgages.
However, there is good news, in that interest rates remain very low and are likely to be for some time, and Portuguese banks are lending. Generally, 80% loan to value ratios are achievable, but you are much more likely to be offered a loan at around the 65% level. Other criteria, such as ensuring your existing repayments on loans and credit cards are less than 35% of your total income, and the ability to prove your income over a good period of time, will help to tick lenders’ boxes. Lending appetite has increased: in the first 3 months of 2014, 65% of mortgage applications were succesful, three times the level of a year earlier.
There are plenty of UK-based mortgage brokers who can advise you and put you in touch with suitable lenders. Don’t forget that your monthly repayments will be in Euros, so if your income is still in sterling then your repayment amount will vary with the exchagne rate – you can lock into a fixed rate deal with a currency broker if you would prefer to have a fixed monthly sterling amount to cover your Euro mortgage payments.
Opening a Bank Account
You will need a Fiscal Number in order to open a bank account, although the bank will be able to obtain this for you. A Fiscal Number means you are registered in the Portuguese government system. This can also be obtained from the local government office, on presentation of your passport – but in any case you do not need to open a local bank account until around your completion date, since it is more efficient when transferring funds for the purchase, to send directly to your lawyer’s Euro bank account. Once you get near to taking possession of the property, for which you will need to get your Fiscal Number anyway, you can open a bank account quickly and easily for day to day running of your finances in Portugal. Portuguese banks are relatively efficient and there is not a lot to choose between them, so find one which has a branch local to where you are buying. All will have English-speaking staff.
Your estate agent will be likely to offer you a ‘furniture pack’ which will give you all the basic furnishings, fixtures and fittings for your new home if you are starting from scratch. Odds are you will want to spend some time shopping locally too, but if you want to move in quickly and are not bringing a house-full of possessions with you, then a furniture pack can be a good place to start. Check for value and make sure you don’t pay over the odds, as your property agent may well be paid a commission if you use their recommended supplier.
Of course if you are moving some or all of your UK possessions to your Portuguese property, you will probably need some help from a specialist removals company who deal with overseas projects. These can be expensive, so shop around, and check some key facts:
- Are all your possessions insured while with the removal company, including while at sea, and to what limit?
- Is there a ceiling on single item value?
- How long will it take?
- Will they help with unpacking, and will you need to be present?
- Are they members of The British Association of Removers Overseas or The Association of International Removers?
As with many elements of your dream move, recommendation goes a long way, so use internet forums or any friends you know who have made the move to the mainland. Since your belongings will be away with you for some weeks, make sure you keep a list of what’s where, and don’t pack anything you might need meanwhile.
There is also the issue of ‘Letting Out’ for many Brits buying in Portugal, or at least many of those who are not living permanently in the new property. Don’t assume that letting your property will be easy or that it will be full 50 weeks per year – be realistic as obviously demand will not be as strong in the winter as in the high season when tourists flock to the Algarve in particular. There are plenty of good websites where you can advertise your property to let, and your agent may be able to help locally.
Remember that a lettings agent will also be able to help with basic maintenance and cleaning, and is an extra pair of eyes in your absence – at a price of course.
And don’t forget that ongoing bills will continue to accrue on your new purchase. Local taxes, utilities, maintenance and gardening will all need attention – as an expat in a foreign country, it will help to make friends and gain useful local contacts, again making sure not to pay over the odds. By now you will have a Portuguese bank account open and be able to use that to facilitate local payments even if you not present. Again if you are letting your property through an agent they will usually offer to take care of bills for you for a small administrative charge.
Finally, make sure you have the relevant permissions and paperwork if you are permanently moving your pets, your car, or any other items which might need registering in Portugal – obtaining permits in advance will avoid uncomfortable brushes with the authorities. The Portuguese Consulate in London is a good resource for checking what is needed. Generally, the EU Pet Passport allows for free movement of cats and dogs; interestingly, it is illegal to keep a ferret as a pet in Portugal!
Useful Links – Moving to Portugal
British Association of Removers (Overseas): www.baroverseas.co.uk
Association of International Removers: www.iamovers.org
Portuguese Consulate in London: www.portuguese-embassy.co.uk
You will want to make sure you have sufficient insurance for your new property and its contents, especially if you are not living there all year round. There is a useful contact below based in the UK who can give you a quote and some guidance, or you can ask your estate agent for some local contacts – or again do your research online and ask others who they have used. While crime levels in Portugal are not terrible, a foreigner’s property left empty for months of the year can be a temptation to burglars, so insurance to cover you is highly recommended.
If you have a UK state pension, you can opt for it to be paid directly to you in Euros, which the UKgovernment will organise at exceptionally good exchange rates, since unlike a bank they are not interested in making money from your currency exchange. If you have a private pension in the UK, this will still be paid in sterling to your UK bank account, and you can use a currency broker to transfer on to your Portuguese account either monthly or in lump sums a few times a year, perhaps when exchange rates are looking favourable.
Useful Links – Pensions & Insurance
Intasure insurance for overseas property: www.intasure.info
HMRC guide for non-residents: www.hmrc.gov.uk/nonresidents
What are the main differences between life in the UK and Portugal? Here we look at some of the main points to consider in healthcare, language, education and other common questions about day to day life.
Healthcare in Portugal
State healthcare benefits are automatically granted if you are working in Portugal and registered on the social security system. Deductions are taken from payroll, and using a Cartão do Utente issued by the local health authority, doctor and dentist visits will be covered, as well as most medication, although there may be small charges for some treatments and non-essential medicines.
If you are not employed in Portugal, you may be entitled to cover under EU reciprocal arrangements, based on your UK national insurance payments. Check with the local social security office, see links below.
If on the other hand you are still working and living in the UK, and visiting Portugal without living there permanently, a simple EHIC card issued by the NHS will cover you just as it would if you were on holiday, since your National Insurance contributions are still being made in the UK. (Make sure you always carry your EHIC card about your person, to avoid complications or delays if you need treatment.)
Useful Links – Healthcare
EHIC Card applications: www.ehic.org.uk
Department for Work & Pensions: www.dwp.gov.uk
Everybody, and we mean everybody, on the Algarve speaks English. This poses something of a hidden problem, because the motivation to learn Portuguese can easily drop down your list of priorities when life is so easy. However, the satisfaction that can be gained from learning a new language, even at a basic level, is well reported and to develop better relationships with everybody you come across in daily life in Portugal, whether eating out, hiring a car or carrying out property maintenance, a little Portugese can go a long way.
There are many classes, both traditional and online, available while you are still in the UK. It is unlikely that you learnt Portuguese at school, and a common misconception is that Portuguese is similar to Spanish – while that may be true in its structure, the vocabulary and pronunciation are markedly different.
On the Silver Coast you will also find that English is universally spoken and understood, but if you venture to more rural locations of course you will very soon feel like a fish out of water without any local linguistic skills.
Certainly it is recommended to take the time to learn some everyday phrases in Portuguese, and if you find that relatively easy, why not challenge yourself to continue learning?
Useful Links – Language
Rosetta Stone self learning courses: www.rosettastone.co.uk
Buying a property in Portugal is a challenge, but one that can be easily overcome with some good advice, determination and good spirit. Thousands of British buyers are purchasing properties in Portugal each year, and the overwhelming majority tell us they have enjoyed the move and have no regrets. There are likely to be hurdles along the way, but it’s a great experience, with a fabulous result – your own second home abroad away from the bustle of the UK. We hope that you have found this article useful; do feel free to contact us if for further help as we speak to buyers of Portuguese property every day and are likely to have heard about most problems or issues before. With some research and support, we hope that buying your dream property in the sun goes smoothly and we look forward to being of service.
To contact the team at Currency Index, please see our contact us page and complete your details. We do not pass information to any third parties unless you ask us to.
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