If you’re considering investing in property in Madeira or moving to Portugal and buying a home, then you may be struggling to find information on Mortgage Requirements and options available to ex-pats or overseas investors. At Madeira Estate, our aim is to help you find your dream home in Madeira and navigate the Portuguese housing market with confidence. In this guide, we’ll be breaking down the Portuguese mortgage system and giving you all the information to get started.
Why buy a property in Madeira?
Madeira is an autonomous region of Portugal, located 900km from Lisbon in the Atlantic Ocean. With a temperate micro-climate offering great weather year-round, high quality of life and low cost of living, low crime rate and areas of outstanding natural beauty, the island has much to offer for retirees, ex-pats, and remote workers.
As Madeira is part of Portugal, it is an EU member country with access to the European Economic Zone and Schengen Visa-free travel scheme. Portugal has a range of benefits and visas available to overseas investors, businesses, and young professionals who are looking to move their operations to Portugal and benefit from EU business legislation.
Residency by Investment – The Golden Visa
Madeira is one of the areas of Portugal where it is possible to achieve residency through investment, or a Golden Visa. We’ve written a detailed article about Madeira’s Golden Visa which you can read here.
Visas for retirees, those with Passive Income or Highly skilled professionals.
Madeira and Portugal have a range of visas which allow non-EU/EAA/Swiss citizens to obtain residency in Portugal. We’ve broken down several visas in our blog at Madeira Company Contabilidade which you can find below:
D2 Visa – The Entrepreneur Visa
D3 Visa – Portugal’s ‘Tech’ Visa
D7 Visa – The Retirement or Passive Income Visa
Non-habitual residency – Tax privileges and exemptions for ex-pats in Portugal
How much can you borrow in Madeira?
The Portuguese government and RAM (Região Autónoma da Madeira) actively incentivise overseas investment in Portugal, Madeira, and the Azores. As a result, there are no restrictions for non-EU residents buying property in Portugal.
Banks in Portugal typically offer loans up to 65-75% of the value of the property or its sale price, whichever is lower. Fiscal residents in Madeira can borrow a higher amount of 85-90% of the sale price in most instances.
Like most developed countries, mortgage providers will assess your financial situation. Mortgage lenders tend not to allow the sum of any existing debts and your new mortgage payments to exceed 35% of your net monthly income.
Retirees can take out mortgages in Portugal provided they have regular pension income and can provide their pension slips as proof of income.
Deposit and LTV (Loan to Value)
As a Fiscal Resident purchasing your primary residence, you will be required to provide a minimum deposit of 10% of the value of the property or the sale price, whichever is greater. A mortgage for a 2nd property will require a minimum of a 20% deposit.
Non-residents and overseas investors are typically asked for 20-30% LTV.
When should you apply for a mortgage?
Once you have decided to buy a property in Madeira, you should begin your mortgage application as soon as possible. You do not need to have decided on a property, or have a deal agreed in principle. Beginning the process early will prepare you for the initial down payment and give you an indication of the value of a property that you can afford.
What type of Mortgages are available?
Most mortgages offered by Portuguese lenders are principal loans plus interest. These are either fixed-rate or variable-rate mortgages. Interest-only mortgages are usually on available for new construction projects and are usually only for a two-year term.
For fiscal residents, the maximum age banks offer loans to is 70 years with a maximum mortgage length of 45 years. For non-residents, the loan duration is 25-30 years.
- Photo Identification
- Proof of residency (if applicable)
- Proof of income – three months of payslips, income tax and social security and an accountant’s statement of your financial status
- Documentation of any existing mortgage, rent, or debt obligations
- Three months of bank statements
- Proof of deposit
- Property details – Purchase commitment or sales contract (if applicable)
Steps of Applying for a mortgage
Mortgage quote – When you submit your initial application, you will wait 1-2 business days for a quote. Typically, there is a fee for this service.
Submitting Application – After receiving your quote, it’s time to complete the full application. At this stage, all required documentation is to be submitted along with the application form.
Mortgage Offer – When the mortgage has been approved, you will receive a formal offer from the lender. Your mortgage broker will approve the sale conditions as they are negotiated and offer advice through the rest of the purchase procedure.
Valuation Report – Once you have a mortgage offer and have chosen a property, the bank will set a valuation of the property and any associated land. Provided that the valuation amount does not exceed the asking price and there are no issues with the property, the details can be finalised.
Completion Procedure – Before the completion date, have the funds available in the nominated bank account. Once the property and mortgage deeds have been signed, in front of a registered Notary, and all related taxes and fees have been paid, you will be the owner of your new property.
Below is a breakdown of the fees associated with completing a property purchase in Madeira.
Regular Charges– Mortgage advisor fees are typically 0.3% of the loan value.
Bank Application Fee – Anywhere from €150 to 0.5% of the loan amount
Bank Valuation Fee – If a valuation is required (some banks may have already valued this property) the cost can be between €150 and €500, plus tax.
Bank Legal Fees – The legal fees charged by your bank during the mortgage application can cost in the region of €1,100
Legal Costs – In most cases, legal representation can cost between 1% and 2% of the property value.
Notary Fees – Typically between €800 and €1,000 – It is good practice to account for 1.5-2% of the property value.
Property Tax IMT – Annual Property Tax is fixed by each municipality and can range from 0.9 and 2.6%
Stamp Duty IMI – 0.8%of the highest value of the property
Life Insurance & Home Insurance – Life Insurance and Home Insurance policies are mandatory conditions required to take out a mortgage with Portuguese lenders.
Now we’ve broken down some of the costs associated with buying a property in Madeira, you can read our blog, ‘Our Guide to Buying Property in Madeira’. A detailed guide on the property market, negotiation, and the Promissory Contract.
Why work with Madeira Estate?
If you are considering buying a home in Madeira, then reach out to the Madeira Estate team. Our friendly and experienced Real Estate Agents can work with you, or on your behalf to find your dream property. Whether that is a family home, commercial premises, or investment property.
Find out more information about Madeira’s Golden Visa, or if you have any other visa-related questions, visit our partners at Madeira Company, MC Contabilidade. Specialist Tax and Business Consultants who can help you with everything you need to gain your Portuguese residency through investment.
Thanks for your blog, nice to read. Do not stop.
Thank you Mark, glad you enjoyed the read.
The Madeira Estate team.