The Portuguese Property Market from the Finance Perspective.

In this month’s article I shall talk about some of the changes that have happened in Portugal with regards to property finance and how they affect overseas property investors. The changes that have occurred are symptomatic of the issues afflicting the Southern Euro-Zone countries.

The first thing that is evident is that there is less choice available when looking for finance. This is because several of the banks, which were actively lending to foreign investors have stopped doing so, these would include BBVA and BCP. That said, there are still other banks that remain in the market, just less of them.

The banks that remain however have more stringent terms for their lending. Products, which were available at 75% loan to value in 2007, are now reduced to 60%. Banks are looking for high net worth clients and interest rates are far higher. Lenders are seeking to improve the quality of their lending books and this is reflected in their policy.

With certain lenders, it used to be the case that if you managed to negotiate a price well below the market value, you could achieve a 100% loan against the price, as the lenders would allow the loan percentage to be a reflection of the valuation. This is no longer the case, far more conservative lending policy now no longer allows this and even if you get a discount you’ll be restricted to a percentage of the purchase price.

Although these changes to lending criteria have restricted the availability of lending, there has been a positive side to this. The market is now far more realistically priced that it was 4 years ago, this is reflected in the valuations that are coming back from surveyors. Judith Price at Caixa Geral de Depositos told me last week “in my experience valuations are all coming in at purchase price or slightly above”. Realism in any market is a good thing as it leads to stability and confidence.

There are of course still over riding factors which could destabilise everything, you only have to look eastwards to Greece to see where these originate. In September there were some purchases that fell away over the Greek problems and the IMF moving in. The cost of money went up and these increases are passed on to the end borrower.

As far as actual development finance is concerned, the picture is even bleaker. Weak demand and falling prices have meant that there are many projects already at a stand still and lenders are of the view “why lend on more?”

So are there any good bits of news and what should investors consider?

To start with, variable rate loans in Portugal are usually linked to Euribor, When looking at 6 month Euribor, in March 2011 it stood at 1.352%, in September 1.755% but now stands at 1.505%, so it is possible that barring other financial shocks, rates may have passed their peak.

Bank loan margins are still high though, because of the cost of money, so it may be better to consider a fixed rate product for the next few years.

Portugal still offers good value for money and with Sterling’s recent strengthening against the Euro this has again improved. Investors should also consider whether they could raise finance in their own country at a cheaper rate than those available in Portugal, although this needs to be weighed against having Euro debt against a Euro based property if their own currency is outside the Euro zone.

Remember that finance is more difficult to obtain across Europe. Portugal remains a wonderful country with far better value in the property market, than a few years ago. Whilst the economy still has a large debt overhang, the government has taken strong steps to try and bring this under control.


Stephen Brown is Managing Director at Overseas Mortgage Broker Ltd. He has over 20 years experience in the financial service industry in the UK and now specialises in obtaining finance for clients buying property outside their usual country of residence.

Overseas Mortgage Broker operates in partnership with financial institutions in over 50 countries and has helped clients across the world obtain property finance for second homes, investment properties and new main residences.

Overseas Mortgage Broker won the prestigious Overseas Property Professional award for Best Financial Service Provider 2011.