The worldwide credit crunch and weak pound is squeezing the second home market in Portugal. Fred Hurley, of leading independent mortgage broker Mortgages4Portugal, offers some money-saving advice...
There is no doubt that the worldwide credit crunch, which has devastated equity markets and banking sectors in particular, has had repercussions in Portugal. One mortgage lender has pulled out of the non-resident mortgage market altogether and another has reduced the terms available to non-residents.
There has been a similar tightening of the rules being applied by some of Portugal's leading banks in the availability of mortgages to non-residents.The reasons for this are twofold: firstly, there is no longer the availability of money for mortgages that freely flowed between the banks just over a year ago, as many of the banks no longer have the reserves to lend out to other banks and lenders alike; and secondly, there has been a rise in defaults on mortgages from non-residents, which is directly attributable to the effects of the credit crunch back in their own country.Another important factor, attributable to the credit crunch, is that many non-residents not only bought their property for a holiday home but also for investment, with the intention of renting out their properties for holiday lets and using the rental income to help pay the mortgage. With the downturn in tourism and increased costs back home, many second home owners are being squeezed in all ways, not only by the rise in Euribor rates (the interest rates at which banks lend to one another) but also by being offered mortgages unsuitable for them at the time of purchase.
At Mortgages4Portugal, we have seen lots of recent cases where second home owners have come to us finding it difficult to meet their current monthly repayments. When we look into their present mortgage and how it was sourced and arranged, we find that, in many cases, they have been taken by unscrupulous estate agents straight to the bank nearest to the real estate agent's office and signed up for the first mortgage offered to them, often at spreads in excess 1.25% over Euribor, and sometimes as high as 2% over Euribor, having never been offered a choice of mortgage or mortgage provider at all.
Not surprisingly, these are usually the same unscrupulous people who are now contacting their former clients and offering them a remortgage on better terms then originally obtained. While not illegal, this type of activity is clearly unethical and is frowned upon. It is commonly called 'churning'.
Anyone who is experiencing problems with mortgage repayments should, in the first instance, approach their mortgage lender directly (or through a reputable independent mortgage broker) to see whether the terms of the mortgage can be changed to allow a lower payment, by either switching to variable or fixed interest mortgage for a period, or extending the term of the loan, which will help to reduce the monthly repayment. If that fails with your current lender, then of course it is advisable and acceptable to try and remortgage with another lender on more suitable terms.
It's not all is doom and gloom, though. Although new business is certainly slower than last year, mortgages are still available for the right purchaser with the right assets and income level.
At Mortgages4Portugal, we have seen an increase in mortgage enquiries from people who have sterling funds readily available, but are preferring to keep the sterling invested in the UK, and applying for a euro mortgage, which are still available to the right clients at attractive rates, with the intention of paying off a sizeable part of the mortgage when the exchange rate between sterling and the euro improves significantly.
Our advice to those still wishing to purchase property in Portugal with a mortgage is to always to use a reputable independent mortgage broker, who should provide you with three or four quotations from a number of banks or lenders to choose from, after first finding out what mortgage will best suit your requirements
"In many cases, buyers have been taken straight to the bank nearest to the real estate agent's office and signed up for the first mortgage offered to them"