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MARCH 2012 |www.opp.org.uk WORDS | Stephen Brown


PORTUGAL


MORTGAGE OUTLOOK | 53 Testing funding times


Portugal has been going through some tough times. The changes that have affected the country, and its outlook, are symptomatic of the issues affl icting all of the Southern Eurozone countries says OPP mortgage columnist Stephen Brown, managing director of Overseas Mortgage Broker. What is happening today, and what does the borrowing outlook look like for clients wanting to invest in a new home in Portugal?


he fi rst thing that strikes you in Portugal when trying to help a client fi nd a new mortgage, is that there is less choice available and the mood feels negative. This is because several of the banks, which used to actively lend to foreign investors have stopped doing so, including big groups like BBVA and BCP. That said, there are still other banks that remain in the market … it is just that there aren’t many of them.


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And the banks that remain have more stringent terms for their lending. Products, which were available at 75% loan to value in 2007, are now reduced to 60%. All of the Portuguese banks are looking for high net-worth clients and they have all made their interest rates far higher. You can see how the lenders are seeking to improve the quality of their lending books - and this is refl ected in their policies. With certain lenders, it used to be the case that if you managed to negotiate a price well below the market


value, you could achieve a 100% loan against the price, because the lenders would allow the loan percentage to be a refl ection of the valuation. This is no longer the case. The country now has a far more conservative lending policy and no longer allows this sort of thing to happen.


And, even if your client does get a discount, you’ll still be restricted to a


“The market is now far more realistically priced than it was four years ago, which valuations refl ect”


percentage of the purchase price. Although these changes to lending criteria have restricted the availability of lending, it is till possible to fi nd a positive side to things. The market is now far more


realistically priced that it was four years ago, which is refl ected in the valuations that are coming back from surveyors. Judith Price at Caixa Geral de Depositos told me recently that: “In my


experience valuations are all coming in at purchase price or slightly above.” Realism in any market is a good thing as it leads to stability and confi dence. There are of course still over riding factors which could destabilise everything. You only have to look eastwards to Greece to see where these originate. In September, there were several big property deals that failed as Greece’s economic problems piled up and the IMF moved in. The cost of money went up and, of course, these increases were passed straight on to the end borrower. If things weren’t hard enough for ordinary borrowers, spare a thought for Portugal’s developers. As far as actual development fi nance is concerned, the picture is even bleaker. Weak demand and falling prices have meant that there are many projects already at a stand still and lenders are of the view: “Why lend more?”


So, Portugal is going through testing times. But, are there any bits of good news that I can pass on and what should we, as the overseas property industry, be telling our client investors to consider? To start with, variable rate loans in Portugal are usually linked to Euribor.


When looking at six-month Euribor in March 2011 it stood at 1.352% and in September 1.755%. But now stands at 1.505%, so it is possible that barring other fi nancial shocks, rates may have passed their peak. There shouldn’t be any further surprises, provided that all of the bad news has come out now, and been digested. Bank-loan margins are still high though, because of the cost of money, so it may be better to consider a fi xed rate product for the next few years. Portugal still offers good value for


money and the Euro’s weakness should allow overseas investors to get a bargain. Investors should also consider whether they could raise fi nance in their own country at a cheaper rate than those available in Portugal, although this needs to be weighed against having Euro debt against a Euro based property if their own currency is outside the Eurozone. Remember to tell your clients that


fi nance is more diffi cult to obtain across Europe. From my point of view, Portugal remains a wonderful country offering good value in the international property market. Sure, the economy still has a large debt overhang, but the government has taken strong steps to try and bring this under control. Things can only get better.


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