It's becoming increasingly popular to buy a place in the sun as UK property
prices soar and the no-frills airlines increase their routes.
The number of British people buying homes in Portugal increased last year by 25%.
Today, 20% of residents of the Algarve are British.
The system in Portugal is quite similar to that in England and Wales, although there's less chance of being gazumped.
It makes sense to treat this purchase with as much care as you would buying a house in the UK.
Make sure that it's a planned purchase you've thought hard about, and not just an impulse buy at the end of a good holiday.
You'll need to make sure that you have at least
the deposit - about 10% of the purchase price - readily available.
Unless you have enough money to buy in Portugal outright, you will have to
either remortgage your own home or take out a mortgage on the new property.
Remortgaging will mean that your monthly repayments will be in sterling, but
your second home will be secured against your UK home.
If the home you want to buy is already built then you may be able to get a mortgage against it.
You can then decide whether to go for a sterling mortgage or a euro mortgage.
The UK lenders that offer euro mortgages usually have an offshore division
like the Abbey National, Halifax, Royal Bank of Scotland or Norwich &
Peterborough. However they don't usually lend on the security of the property abroad.
If you want a mortgage from a local lender then you may want to go through a specialist broker. The Federation of Overseas Property
Developers, Agents and Consultants has a list of regulated operators.
Finding a house
Make sure you know exactly what you want - a permanent residence or a second home
that you can let out.
That will help you decide on the best location, and also keep clear in your mind how much you want to spend.
Having a pool is great - but bear in mind you will have to maintain it.
Prices have really gone up in the last couple of years - in some places you will pay upwards of £300,000 for a three bedroom villa and £150,000 for an apartment.
In the Algarve you could rent out your property during the peak season of July and August,
which could more than cover any costs of managing the property.
Lesley Phillips, of Phillips Real Estate in Vilamoura in the Algarve, reckons that
the cost of running the average three bedroom villa with a pool would probably be about £350 a month - that's all the bills and any small maintenance work that needs to be done.
But you could rent it out for about £800 a week (net) for the eight weeks of July and August.
Think about what the property will be like in winter as well - you might want or even need central heating etc during the rainy winter months.
It's now time to consider whether you want to have the property owned by an
offshore company or registered as a private ownership.
The offshore set-up might give you some tax advantages whereas the private ownership might feel more comfortable for you.
Here the estate agent and the lawyer can advise you what might be the best route for you to take. There will be an initial charge of around £900, or £1,500 depending on the jurisdiction of the offshore company, and there will be annual fees to pay. You need to weigh up these costs against the costs of inheritance tax or capital gains tax.
You should choose a state licensed agent (mediador autorizado) who is able
to produce his or her AMI number. This number should also be shown on any
adverts or paperwork you see.
In Portugal the vendor pays the agent's
commission - approximately 5% - but the agent acts as a mediator for both sides.
Putting in an offer
As properties are selling very fast at the moment you may have to pay a reservation fee which should be fully refundable if you are not able to proceed with the transaction. You would also usually put an offer in to your estate agent at below the asking
price, but it really depends on how hard the market is.
Expect to offer 3% -10% off the asking price. The estate agent will assist you in the negotiation.
Your agent would then put your offer to the seller. If it's accepted then
now is the time to get a lawyer and to get the property surveyed.
The property laws in Portugal change quite frequently and a Portuguese
lawyer or a lawyer with offices in the UK and Portugal is best. Lita Gale a lawyer with associated offices in Lisbon, Faro and London (020 7580 2066) says that "there appears to be a misconception that in Portugal you can build anywhere and everywhere but planning laws can be very strict, for example you need to take care that the swimming pool of the villa you are buying has planning permission."
Your lawyer should have an "asses" - or Ordem de Advogados - number which entitles them to act in such matters. The Portuguese Chamber of Commerce in the UK has a list of such lawyers (call on 020 7494 1844) as well as an information
pack on buying a property abroad.
The pack costs £10.50 and includes a step-by-step guide to
the procedures involved in purchasing property.
It also covers residency, health, schools etc and general background information on living and working in Portugal and has an extensive contacts list.
Your Portuguese lawyer will need a power of attorney (procuração) to be able
to act on your behalf.
If you are staying in Portugal, this can be registered at the Notary Office. Otherwise, it can be prepared by the Portuguese Consulate in your country of residence, or by a local notary.
In this case it must be accompanied by a Notary Certificate of Apostille of the
Hague Convention and translated into Portuguese.
The lawyer then checks out the details such as making sure the property is registered in the vendor's name. All properties are registered at the Land Conservatory (Conservatória
do Registo Predial) in the name of the seller, showing the history of the
property and whether any charges exist against the property.
All urban properties have a Caderneta Urbana from the tax office (finanças).
The caderneta is like an identity card for the property. It gives the article number, size and location of the plot, it defines the borders of the
plot, and gives a rateable value for the property.
This valor patrimonial is the property value on which the annual rate (autárquica) payable to the
local town hall (câmara) is based.
This value is normally much lower than
the market value of the property. Generally, when purchasing a property, it is advisable to do a search in the finanças as well as in the Conservatória, as
there may be actions pending against the property not yet advised to the
All residences must also have a Habitation Licence (Licença de Habitação)
issued by the local câmara. And this, according to Lita Gale, is where having a lawyer can be especially helpful as some old farmhouses don't have a licence and others are exempt, and your lawyer can advise you on your specific needs. When buying agricultural land other matters have to be taken into consideration and it's not normally as simple as buying an apartment or house. Buying an apartment is much simpler and safer in Portugal than in the UK, as there are no leases and the common parts are owned by all the owners who between them have the right to direct how the property is managed. But, Lita Gale points out, certain tourist resorts have special legislation which governs them and you will need to consult your lawyer about this.
You need to be more careful when it comes to buying an apartment that is still being built.
You must obtain a fiscal number from the tax office even if you're buying through an offshore company.
There are two stages in property purchase - the promissory contract (contrato promessa de compra e venda) and the escriturawhich is the completion of the transaction.
Once the offer is accepted you pay a 10% deposit which goes into your
lawyer's client account. The property is then withdrawn from the market and
shouldn't be shown to anyone else.
If everyone is happy then the promissory contract is produced - this is a binding contract and is promise to buy and a promise to sell.
You can give your lawyer power of attorney to sign on your behalf if you have returned
to the UK.
The deposit will be transferred to the vendor and from now on the buyer will lose the deposit if he pulls out, and if the vendor pulls out he
will have to pay the 10% and an extra 10%.
Hence there is little gazumping in Portugal.
A date for completion of the sale will also be recorded at this point.
There is a property transfer tax, like Stamp Duty, which is called SISA. You have to pay this to the tax office as one of the final hurdles before the property belongs to you.
There are various bands, and rebates, depending on the registered value of the house. You don't pay SISA on homes under 60,015 euros.
For homes with a registered value over 166,054 euros you pay a 10%
SISA. In between those two values there is a graduated scale of rates that you
pay and rebates that you receive.
You pay a fixed SISA tax on agricultural land of 8%.
Offshore companies do not pay SISA tax.
The final stage of the purchase is the escritura publica de compra e venda
which is the drawing up of the title deeds to the property.
This is done by a Notario Publico who records all the details of the property, and the names of the
parties concerned in the transaction, or those acting for them, and reads it
aloud to both parties before their signatures are put on the witnessed
You have to arrange for the balance of the purchase price to be transferred to the vendor at this point. This usually takes place about a
month after the promissory contract is produced.
You will probably want a few copies of the escritura to be made at this point for future transactions.
You will have to present the escritura to the local land registry office, or conservatória, so that the property can then be registered in the name
of the new owner and a land registry fee paid.
The property will also have to be registered with the local inland revenue
office equivalent so that you can pay your annual rates (autárquica) to the
local town hall.
Your lawyer, should and will undertake to deal with all these items on your behalf.
Notary fees - approximately 1.25% of the escritura value (not applicable for
Registration fees - approximately 0.75% of the escritura value
Legal fees - typically around 1.5%, but can vary between 1% and 3% of the
Surveyors' fees - It will cost between £400 and £1,000 to have a property surveyed
depending on the value of the property.
Make a will
Portuguese law will recognise the will you make under English law as long as you are not domiciled in Portugal. That is, if you have upped stick and completely moved to Portugal then you may be better to make a Portuguese will especially if you aren't married. If you only have a will in the UK, and you are deemed to be a Portuguese resident then the Portuguese state will intervene. That would mean that at least two thirds of your property would have to be divided between your spouse and children.
It's probably advisable not to mention any
British property in this will but to keep that separate.
Inheritance tax can be very high so tax planning is important.