Caso 77: Home loan for foreigners
When talking about home loan for foreigners, it is of the utmost importance to distinguish the different subgroups, as the process of obtaining this loan from the Portuguese banks is carried out according to certain criteria which highly differentiate the cases, namely as far as credit risk assessment is concerned. Whereas some loan requests are treated as if they were a “normal” process, in other requests the risk is considered high, which is reflected for example in the pricing or the maximum funding which can be provided.
Among the factors which influence the risk assessment evaluation, the currency in which the income is earned, the tax transparency of both the country of origin and the tax address, as well as the type of residence permit should be mentioned.
Another factor that is certainly relevant is the type of residency which the client will use the property for: it may be classified as HHP (Habitação Própria Permanente, Permanent Residence) or as HPS (Habitação Secundária, Secondary Residence).
The differences in funding the home loan considering the framework of these two types of residency will now be explained.
- For the acquisition of a Permanent Residence (HPP), the banks will finance in general up to 90% of the HPP’s acquisition value, for residents in Portugal who are:
- Citizens coming from the EU, with income earned in Euros;
- Citizens coming from the EU, with income earned in a currency other than the Euro;
- Citizens coming from PALOP countries (African Countries with Portuguese as an official language) and Brazil;
- Citizens from any country, who decide to live permanently in Portugal.
- For the acquisition of a Secondary Residence (HPS), the banks will in general finance up to 70% (or in some cases up to 80%), for residents or non-residents in Portugal who are:
- Citizens coming from the EU, with income earned in Euros;
- Citizens coming from the EU, with income earned in a currency other than the Euro;
- Citizens from any country, who decide to live permanently in Portugal.
The following 4 examples are presented with the aim of showing real-life cases of the scenarios explained above:
- An american couple working for american companies, where they were also working before moving to Portugal. Nowadays, they live permanently in Portugal and they have changed their tax address to Portugal. They are still working for the same companies remotely, from Portugal;
- A brazilian couple, both retired, who is living in Portugal 3 to 5 months a year, but whose incomes are still earned and officially declared in Brazil;
- A young man with french nationality, graduated in IT, who is working remotely from Portugal to a belgian company;
- A swiss couple: the husband works remotely from Switzerland for a multinational company, registered in Portugal. Nevertheless, he travels to Portugal around 25 times per year, and in the ends spends more than 5 montsh in Portugal (both for work and leiseure reasons, as the couple loves the Algarve). The wife works in Switzerland, for an English investment bank.
HPP or HPS? Is it the client who decides? Yes, but…!
It is up to the citizen to declare whether the property will be used as an HPP or an HPS at the signing acquisition contract. However, the banks may require the validation of the declaration, considering this classification influences the risk assessment.
If the clients from the examples ii. and iv [SS{1] explained above present the loan request to fund the acquisition of an HPP, with the aim of benefing from a higher percentage of the acquisition value (ex: up tp 90%), this declaration will not be coherent with their professional life/ tax situation and address.
When studying the global market of properties sold in Lisbon in the last few years, the most common nationalities of the buyers are: north-american: 15%; french: 14%; chinese: 13%; british: 10%; brazilian: 7%. However, in coastal cities like Braga and Aveiro, brazilian buyers are more common, with communities over 20 000 people in those cities.
European citizens can live in any country within the European Union, therefore the temporary residence status does not apply to them.
Most people with a nationality outside the EU can only present a temporary residence status. Some banks do not fund or are more skpetical in funding citizens without a permanent residence status. However, the entity which manages the residence statuses, SEF (Serviço de Estrangeiros e Fronteiras, Services of Foreigners and Borders), is currently delayed in the emission of permanent status ceritifcates. As more foreign people move to Portugal and intend to buy properties, the banks are certainly more open to funding citizens without a permanent residence status.
It is important to mention that the banks will evaluate the risk of funding the acquition of a buyer who has been in Portugal for several years is certainly differently from the risk of funding to a buyer who just moved into the coutnry, regardless of whether they can present a permandent residence status or not.
There are also certain professional and financial profiles to which the banks are more prone to fund a home loan, such as people with high qualifications working in fileds like IT (Information and Technology), Engineering, Health Services, or people with significant savings, which may imply LTV values lower than 50%, etc.
On the other hand, there are banks with stores located in countries such as Angola, Brazil, Spain, Switzerland or the USA, hence their availability to finance citizens from those countries is usually higher.
However, it should be mentioned that the Bank of Portugal has warned the portuguese banks not to finance home loans to foreigners whose income is earned in a different currency, as significant changes in currency exchange rates may influence the clients’ solvability.
Some banks will ocasionally fund the home loan to clients with incomes earned in a different currency, as long as these currencies are considered stable and strong, such as the GBP, CHF, USD, DKK, NOK, CAD, etc.