Buying a home in Portugal? PrimeLocation has teamed up with independent overseas property trade association, AIPP, to bring you this essential go-to guide.
Where do I start?
A relaxed Mediterranean lifestyle, white sun-soaked beaches and excellent golf courses makes Portugal a great alternative to Spain or France for Brits looking to buy abroad.
Though the global financial crisis hit Portugal hard, it’s now making an excellent recovery and its economy is stabilising. Attractive tax and residency incentives, as well as low mortgage rates, have also proven popular with expat buyers.
Nevertheless, before you proceed, it’s worth asking yourself these three simple questions:
1. What are you primarily buying the property for?
Is it a holiday home, a financial investment – or somewhere to retire to in the longer term?
2. What do you see yourself doing there?
This might be spending relaxing time with your partner, hosting family and friends, indulging in sport and leisure – or even working.
3. What is most important to you?
Is it budget, location, the kind of property or surrounding facilities?
Once you have these answers you’ll be clearer about what you are looking for and can move onto the fun part.
Where in Portugal should I buy?
Attracted by its stunning beaches, excellent climate and award-winning golf courses, the Algarve, on Portugal’s southern-most coast, is a number one property hotspot for Brits. It’s also a great region for holiday rental opportunity.
The Algarve’s central resort towns of Vilamoura, Vale do Lobo and Quinta do Lago are often singled out as its most desirable pockets. Property developments and their linked facilities are in the super league. But this, of course, also means they come with the highest price tag.
If your budget is more limited, the central Algarve offers some great alternatives. Check out Loulé, famous for its Saturday morning gipsy market, or Silves with its abundance of orange and lemon trees. Pretty Armação de Pêra, just west of Albufeira, has a great atmosphere yet avoids being too over-crowded in the seasonal months.
But money will go further still in the Western Algarve which has been steadily growing in popularity. Explore the leisure resort of Carvoeiro, the charming beach village of Burgau or the larger fishing town of Lagos. For a much quieter pace of life (and some great surfing) Odeceixe is worth a look.
The Eastern Algarve is perhaps the least touristy part of the region but you can still find some great property deals just 20 minutes drive of Faro airport. Tavira, close to the Spanish border, has been mooted as a potential hotspot for a few years now. For unspoilt countryside but still within 30 minutes of the coast, villages around the river town of Alcoutim may offer what you are looking for.
To discover ‘real Portugal’ leave the Algarve behind and head north-west to the Silver Coast (or Costa de Prata) which lies between Lisbon and Porto. With its famous ‘glittering’ beaches you’ll find everything here from historic towns and traditional fishing villages to modern coastal resorts.
Also worth considering is Aveiro which is known as the ‘Venice of Portugal’ for its lagoons – or the bohemian medieval town of Obidos for its art and culture. If you want more in the way of amenities the bigger towns of Nazaré and Marinha Grande may be a better fit.
Formerly overlooked by Brits but now gathering pace as a property hotspot is Portugal’s Blue Coast (or Costa Azul). Stretching from the top of the Algarve to just north of Lisbon, the region plays host to the gigantic natural reserve of the Troia Peninsula where you’ll find protected dolphins and hundreds of varieties of birds.
Upscale developments have been built along the sheltered white sand dunes of Troia and Carvalhal and a wide range of property is now available there at reasonable prices. For something off-resort, consider the hillsides of Sesimbra province where you’ll find stunning rugged views. Alternatively, look at the ancient sea town of Setubal – which is known to wine-lovers as the home of Moscatel and to football-lovers as the home of Jose Mourinho.
Finally, we should mention Portugal’s beautiful islands. Madeira is perhaps the best-known and its international airport provides good connections. Steeped in history, the island has traditionally drawn an older profile visitor but trendy boutique hotels springing up in the last decade have since been attracting a younger, cooler crowd.
Property in Madeira is generally more expensive than on mainland Portugal but there is plenty of it available. Look at the charming village of Ponta do Sol in the south or the equally picturesque Camacha in the hills east of the capital Funchal.
Sao Miguel is the largest and most populated of Portugal’s Azores islands and is built onrolling plains, mountains and deep crater lakes. Now serviced by the budget airlines, holiday homes on the island have become a feasible possibility.
Your first port of call for property there might be the cosmopolitan main town of Ponta Delgad, which sits on amodern marina. Although the smaller islands of the Azores will offer bargain prices access and amenities are limited, so do your homework.
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 traditionally 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 home 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.
Need legal advice?
The ‘AIPP Legal Working Group' or LWG is an AIPP initiative designed to protect British Buyers of foreign property. It provides a free legal roadmap of what to expect and points out common pitfalls to avoid.
What you’ll get:
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:
o VAT (IVA) for new-build property is payable at the standard rate of 23%. It’s usually included in the property price.
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)
Get the most for your money
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.
What potential pitfalls should I be wary of?
So long as you’ve enlisted the help of an independent lawyer your home-buying process in Portugal should run smoothly. However, it’s still worth reading these common pitfalls:
1. Failing to calculate the exchange rate correctly when working out the final purchase price
Currency prices fluctuate all the time. And while this might be manageable when buying your holiday money if the final price of your home varies significantly from the time you made your offer, it can prove a major problem. We recommend fixing your rate via a specialist foreign exchange company.
2. Falling into the ‘under-declared’ valuation trap
In Portugal, taxes are based on the value of the property. No prizes for guessing then, that a common practice in the past has been to declare this amount as being much lower than the actual price paid.
But tricks like this won’t cut it these days. The fiscal value of the majority of Portuguese properties has since been reassessed and brought in line with actual sales values. There are also now strict penalties for under-declaring.
3. Buying a home that’s not legal
Some purchasers (usually those without legal representation) have been caught out by buying property without a legal title or without correct planning consent for work completed. Don’t sign anything until a lawyer has looked at it first.
4. Being inflexible on the completion date
Although the completion date will be agreed when the preliminary sales contract is signed, bear in mind it’s only a guide. Don’t plan your move until further along the purchasing process.
Is there anything else I should consider?
The costs don’t stop once you’ve completed on your Portuguese property. Make sure you factor in the ongoing cost of living in Portugal and running your home to avoid any nasty surprises. Consider the following:
Healthcare – Although there is a relatively good public health system in Portugal and reciprocal arrangements with other EU member countries, you’d still be advised to take out your own private health insurance if you can afford it.
Taxes and Pensions – The cost of living is pretty low in Portugal compared with the UK. But, especially if you are permanently relocating, it’s still important to understand how your tax position – and state pension – will be affected. Always seek professional advice as inheritance and taxation laws differ to those in the UK.
Planning for the unexpected – Have you thought about what would happen if you or your partner is taken seriously ill or even dies? Are you able to get back to the UK if you are needed urgently? It’s imperative to see beyond the initial property purchase and put plans (and funds) like these in place.
Home Insurance – Consider how you will use your home in Portugal and get appropriate home cover. Properties left unoccupied for long periods, for example, need special insurance.
Follow these steps and you should soon be enjoying your new life in Portugal.
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Who is AIPP? AIPP (Association of International Property Professionals) is the trade association offering voluntary regulation of the international property industry in the UK. AIPP members adhere to a strict code of conduct in how they treat their customers.
Buying an overseas home via an AIPP member offers access to free legal advice and the potential for compensation through The Property Ombudsman scheme. Visit the AIPP website to download free buyer guides and search for members.