New and remodeling Portugal

New and remodeling Portugal

It is possible as a non-resident of Portugal to get a mortgage for new construction or renovations. However, this is subject to strict conditions by the banks. One wants to finance only construction projects done by official Portuguese contractors, and self-builds will not be financed.

The maximum financing rate for new construction is applied to the sum of the land purchase and total construction cost.
For renovations, the maximum financing rate is applied to the sum of all renovations for which quotes are available from official Portuguese contractors. Some banks are willing to apply the financing rate to the expected value of the property after renovations. If the property is not already “fully” financed, the renovations can then potentially be fully financed.

The process of getting financing for new construction done requires intensive guidance and is time-consuming. Hypotheek & Buitenland also accompanies these routes, but at a higher rate for the service compared to financing existing construction.

Applying for a mortgage when working with a Dutch contractor, “a male” or self-build does not finance Portuguese banks. Only when working with official Portuguese contractors can new construction or renovations be financed with a mortgage.

A fully documented building permit application should be made to local authorities. A suspensive condition should also be included when purchasing building land in case the building permit is unexpectedly not granted.

A bank will ask for a number of documents for approval of a mortgage application for new construction:

  • Construction plan and architect’s drawing
  • Total cost estimate of construction
  • Construction timetable including payment schedule
  • Certidão do Registo Predial of the plot
  • Licença de Utilização – Land use designation.
  • Building permit
  • Signed construction agreement with contractor

Appraisal for new construction or remodeling is done by an appraiser’s assessment of the future value after completion (based on the building plans and the value of the lot).

Release of mortgage funds is made from construction deposits at the client’s call as works progress and invoices come in. Often, an interim appraisal then also takes place, checking whether the works have actually been carried out. The condition for release of the mortgage funds is that a mortgage guarantee has been placed on the land by mortgage deed. With most banks, the mortgage remains repayable until the construction deposit is drawn in its entirety (usually with a maximum term of max 2 years). Interest is then paid on the released funds and a commitment fee on the mortgage funds not yet released.