wannabethere

Hi,

I have just joined and making a start on owning a property in the Algarve.
A big open question to start me off.
Can you tell me the best way to finance and what costs and taxes I will need to be aware of and take note of what I will have to pay once I make a purchase.

I am looking for a property around £150.000 - £200.000 max and I have my own property in the UK with an outstanding mortgage of 50K, equity in the region of 250k. What will be best. Remortgage or finance through a Portuguese bank?
I am looking to possibly rent this out occasionally so what certificates do I need.
Breakdown of conveyancing costs and anything else I need to know about would be a great starting point.

Thanks

P

Shanorme

Hi and Welcome!

I can't answer all your questions but we have recently also bought a place. We ended up using a Mortgage Broker to negotiate various options on our behalf and we were happy with the outcome. I would say you probably want to look at financing through a Portuguese bank - we actually ended up with a lower interest rate as a result. By all means look at both options.

An important part of the process is finding a good lawyer - do NOT under any circumstances use a lawyer recommended to you by an estate agent. Our lawyer handled everything to do with the conveyancing and figuring out the various taxes we needed to pay. The total legal fees including Stamp duty, lawyers fees, notary fees, IMT etc came to approximately 6.5% of the purchase price. This does not include the survey required by the bank or the Broker fees, which were to be fair were quite low.

As far renting your property out - I'm sure someone will be along to advise.

Shanorme

I will type out summation of things we were charged for when I get a chance. Probably tomorrow.

wannabethere

Shanorme

The cost was broken up into: IMT, Acquisition stamp duty, Deeds of Acquisition (notary fees), Promissory contract preparation, cost of official copies of documentation, Property registration, Attorney fees, setting up utilities: electricity (in our case), Office file handling & expenses, Fiscal number & representation.

wannabethere

Shanorme

I used Marisa from Rui Horta in Tavira as my lawyer - she's been excellent. We have actually just used her again to help us secure a piece of land that was next door to us. I was very pleased with her service, especially as there were 5 people that had to be negotiated with so that we could purchase the land!

The Mortgage Broker was Mario from Quinta Finance. Again, very happy with the service. I can PM both email addresses if you like?

wannabethere

That's great if you could. An email address to her would be great as i'l arrange to see her. Thanks for your advice.

EMR

Decisions and solutions, with offices in Lagoa and Faro is can excellent company who have arranged a large number of mortgages for uk buyers..
We got ours from Santander, .
Banks in Portugal will value properties at much lower levels than in the UK, market price is not a guide.
A max loan of 70% of 70% of the bank valuation is not unusual.

Shanorme

PM sent.

Shanorme

I think we must have been really lucky because our valuation was pretty close to the purchase price but we also put down a large deposit - might have helped.

EMR

As you suggest, the size of the deposit can make all the difference .
Friends have just sold their apartment the buyer needed a 50% mortgage and obviously met the ability to repay criteria so no issues.
Another family we know wanted to buy in Lagos but the valuation and % that could be lent mean,t that they could not finance the purchase not having a large enough deposit..

wannabethere

I think a remortgage will suit me and use the capital to purchase, otherwise I will have to wait 5 years until I retire and the golden handshake gives me around 75% deposit or a large pay off on the remortgage. I think this is the only way I have at this present time. Also 5 years gives me a chunk to pay off also whilst i'm still in work. Can anyway suggest this also. I will just have to make sure once I retire the banks will take my pension as enough to finance the remaining outstanding balance. I have worked out I would want a mortgage of around 70K once I have paid off some capital.
Lots to work out before I go off looking and discuss buying one.

Another question is if I am just using the house as a holiday home, do I get stung with capital gains tax if I have to sell. The property won't cost over 180k.???

EMR

Yes you will as a non resident 28% of any gain.

Andy43

We are trying to buy in the Algarve at the moment. <bitesnails>
Loads already covered by others (this place is seriously useful!) but this is what I've learnt so far...

Offer on property accepted, and we are also customer of Quinta Finance - very pleased with progress so far, hopefully getting full approval next week. Bank needs to survey the property and as far as I understand they compare it to the approved plans and confirm what we're buying is what is on the plans. The bank can force rectification work on you if there are unapproved additions, or so I have been told - the survey is just for valuation and legality rather than checking for rot, leaks, dodgy wiring etc, similar to a basic drive-by bank valuation in the UK. We have been told we will need to visit the bank in person in Portugal to sign the paperwork. You need the council fiscal number (NIF number) before you can apply for a mortgage or bank account - lawyer can get fiscal numbers with a power of attorney from you.
If a cash buyer, you save a bit on tax - there is an extra 0.6% tax on any mortgaged amount - this may be for foreign nationals only, not sure on that. Extra few hundred euro for mortgage deed, registration etc.

Lawyer-wise I was advised for obvious reasons don't use somebody the estate agent recommends! It's useful if the lawyer is based in the same area for local knowledge, easy access to council paperwork etc. A portuguese will would be a useful extra to add on. Quotes we had for legal work were much higher than the UK - so if the above recommendations can quote less than 1% of purchase price I'd snatch their hands off! I suspect we are massively overpaying as some people are stating a few hundred euro for conveyancing... but such is life...

A promissory contract is done (exchange of contracts) after finance is sorted and due diligence has been done by the lawyers. You put down 10% of purchase price, into the lawyers client account and then to the other side's account. Fail to proceed and you lose that deposit, but if the seller fails to proceed they owe you double. You then complete with the remaining funds as in the UK, on a prearranged date.

We will be renting ours out - again, lawyer is sorting the licence - I've copied his advice here :
"Since November 2014 a new law is in place about this type of holiday let activity for 2015 and subsequent years. Portuguese law requires a local lodging license and also a new tax registration as a “business entrepreneur” (not a normal rental typical of a landlord/tenant relationship). One of the clients (husband / wife for example) need to register before at the Tax office as a “business entrepreneur”. In fact you will be exploring a “small accommodation unit”. Then, as a business person, you need to raise official invoices and despite social security exemption during the first year (you need to pay social security in Portugal from the second year unless the person that does the exploration already pays social security in the home country or holds a state pension – or already pays in Portugal). We may get the exemption after the first year. And every year the person doing the exploration files a tax return in Portugal."
Our lawyer will also be completing our tax returns. You need various bits of kit to rent - fire blanket, extinguisher, signage etc by law - council can (but apparently don't bother as they're understaffed) come out and inspect the 'lodging'. No mandatory annual gas check is lunacy in my opinion, but you as 'landlord' and holder of the licence are responsible to ensure gas and electrical installations meet regulations, so you would be nailed to the floor should a holiday maker get hurt or worse. I am aiming to get things looked at annually, and to be 110% 'right'. Our prospective purchase is under 20 years old and some of the electrics look 'interesting' compared to what I'd be happy with in the UK.
Don't underestimate the costs of advertising, key holding, managing, cleaning, gardening, pool cleaning blah blah blah - it adds up. I think if you can cover your mortgage costs and all the bills etc and get a few free holidays a year sleeping in a bed you chose yourself you're onto a winner.

Taxes - the biggie is IMT, on a sliding scale between 1% and 6% of purchase price. You may be offered the option to state ten percent of the purchase price is to be for furniture, as this saves a small amount of IMT. We declined - as the capital gains tax when you sell is as already said a huge 28%, far more than can be saved on purchase. Then stamp duty - 0.8% of purchase price.

Another point to note is getting the gbp into euros - transferwise, argentex and others will do a cheaper and potentially quicker job than the average bank - well worth some googling and asking for recommendations on that. Not sure who we'll use yet. And as in the UK, do phone the lawyer direct to 100% confirm his client account details, and send a small 'test' payment to make sure all is as it should be before firing off thousands electronically.

Right, time for lunch. In greeey drizzley NW england...