While most people buying property in Portugal buy for themselves, either as a main residence or a holiday home, many buy with the intention of renting that property out, either to long-term renters or to short-term holiday-makers. And, unless you’re in the lucky position to have savings to cover the purchase, it’s quite likely you’ll need a mortgage.
Getting a mortgage in Portugal is possible, regardless of whether you live there (resident) or not (non-resident), but a big difference that many people find is that buy-to-let mortgages, which are common in the UK and Ireland, don’t exist in Portugal.
In Portugal, there are residential mortgages and commercial mortgages, but as there aren’t usually restrictions on renting out your property, either short or long-term, most people buying a property for rental purposes usually just get a normal residential mortgage. For bigger projects, such as a guesthouse, you may need a commercial mortgage.
This can make renting property in Portugal quite an attractive prospect. Buy-to-let mortgages in other countries like the UK normally mean higher interest rates than residential mortgages and most mortgage providers don’t allow you to rent out or Airbnb your property on a residential mortgage.
According to Camille Ramiere, a buyer’s agent who runs the agency Bloom Spaces, “Portuguese banks don’t have a separation between residential and buy-to-let mortgages. The good news is that it’s easier to rent a property out without needing a special mortgage for it. However, it does mean that you can’t take projected rental income into account when trying to work out your mortgage affordability.”
Can I afford a rental property?
Because projected rental income isn’t taken into account, the calculations for affordability will be slightly different.
The first thing you’ll need to think about is the deposit and buying costs.
Deposits & other costs
The size of the deposit you’ll need will depend on whether you’re a resident (i.e. legally living in Portugal) or a non-resident (i.e. you live somewhere else).
While residents can buy property with deposits that are as little as 10% or less, this is rare for foreigners living in Portugal. You’ll normally need to make a downpayment of around 20-30%.
For non-residents, the typical deposit amount is at least 30%.
As well as the deposit, you’ll also need to have money to cover buying costs like stamp duty, lawyer fees, and mortgage application fees. These typically run between 6% and 10% but it’s good to estimate 10% just to be on the safe side.
This means that as a resident you should have 30-40% of the property purchase price in cash and at least 40% if you’re a non-resident. The additional buying costs can’t be covered through a mortgage.
Affordability is based on your fixed monthly outgoings, which in Portugal typically cannot exceed 35% of your net income (income after tax).
What does this mean in practice?
Fixed outgoings are things like this mortgage, rent, other mortgages, loans, and credit card repayments. The total of all of these cannot exceed 35% of your income. This means that if you earn €1,000 per month after tax, all of these outgoings, including this new mortgage that you’re applying for, cannot amount to more than €350 per month.
Assuming that you can afford the mortgage, there are always other practical considerations when buying a property for rental. Many of these, such as whether you’ll need to use a property management company, are the same regardless of where you buy that property, but two specific to Portugal are taxes and AL licences.
Taxes are one consideration, which different depending on whether or not the property is a short or long-term rental. For long-term rentals, the rate is 28% and for holiday rentals the tax is 6%. It’s quite a considerable difference, which is why many people focus on short-term rentals.
Another consideration is whether you will be allowed to let the property as a holiday let. While you may not have problems getting a mortgage, you may have issues getting an AL (Alojamento Local) licence. Lisbon, for example, has heavily restricted the number of AL licences it’s willing to give out within the city centre.