The interest of foreigners in houses in Portugal has increased significantly in recent years. And this is also evident from the figures on mortgage loans provided by banks in Portugal. According to estimates by the Bank of Portugal (BdP), about 10% of the value of new home purchase loans was allocated to foreign citizens. This growth is explained by the regulator with the highest demand from foreigners for their own housing in Portugal and because this type of buyer is of working age and has a lower age group than normal.
“Credit to foreign citizens (residents and non-residents) has increased over the past period, but remains a small weight,” the entity led by Mário Centeno says in the latest Financial Stability Report, which also shows that “of the value of new home loan transactions in 2021 and in the first half of 2022, 10% was granted to foreign citizens”. DN/Dinheiro Vivo questioned the regulator about the nominal value of the loans in question, but an official source clarified that “the requested information contains an estimated component, therefore the reference in the Financial Stability Report is a percentage and rounded to the nearest decimal point “. For these reasons, he explains that “it is not possible to disclose the exact amount in question”.
But if we look at the weight of foreigners in the stock of home loans issued by banks – that is, not just in new loans but in the total amount on bank balance sheets – there is an increase. Between the end of 2019 and June 2022, there was an increase from 6.4% to 7%.
The Bank of Portugal also notes that home loans granted by national financial institutions to foreign citizens generally have lower risk indicators. The loan to value ratio (LTV) is lower and contract terms are also shorter.
In June of this year, 12.5% of these contracts had a ratio between the loan amount and the value of the real estate pledged as collateral (LTV) of more than 80%, a value comparable to the 16% in the case of credit granted to nationals during the same period. And 32% had a current LTV ratio between 40% and 60% (25% for nationals), the Bank of Portugal reports.
In addition, in terms of contract terms, only 40% of home loans granted to foreign citizens had an original term between 30 and 40 years (65% of loans to nationals).
foreigners buy more
This increase in home loans extended to foreign citizens coincides with a strong appetite for national real estate. “Home transactions by non-residents have increased significantly in recent times, particularly from buyers residing outside the European Union,” said the Bank of Portugal.
The institution led by Mário Centeno concludes that this external demand has contributed to the increase in real estate prices “The regional heterogeneity of demand from non-residents contributes to a differentiated development of prices between regions. Due to the increase in Due to demand from non-residents, the increase in house prices is more accentuated in regions where their weight is greater and the percentage of transactions financed by credit is lower,” the same document states.
In the second quarter of 2022, the median house price increased year-on-year by 19.8% in the Algarve, 14.5% in the Lisbon Metropolitan Region, 11% in Porto and 10.8% in the rest of the country. “In aggregate terms, the percentage of transactions financed by domestic credit has increased in recent years, but remains 25 percentage points lower than in 2009,” said the Bank of Portugal.
Due to higher demand from non-residents in certain parts of the country, the weight of credit in housing transactions varies significantly by region. In the Algarve, the percentage of transactions financed with home loans in 2021 was around 20%. In other words, most real estate purchases were paid for in cash or with credit from foreign banks. In the metropolitan areas of Lisbon and Porto, it represented about 60% and 70% of the value of transactions respectively, reaching more than 80% in the remaining regions.
Source: DN
