Mortgages. Discover the Municipalities in Portugal Where It Is Easiest to Buy a Home

 

1 September 2017

It is hardest to get mortgages in Cascais, Funchal, Lisbon, Mafra and Porto. Mortgage payments in Seixal and Setúbal weigh less heavily on income. Find out why.

Is real estate cheap in Portugal? Many readers will be tempted, according to their pre-conceptions, to respond “yes.” But the Organization for Economic Co-operation and Development (OECD) includes the Portugal in the group of nations “where houses seem undervalued, and prices are falling or practically unchanged.”

Few real estate markets in the developed world are considered inexpensive. In addition to Portugal, the OECD highlights only four: Germany, South Korea, Greece and Japan. The organization’s analysts used several indicators – such as the relationship between prices and household incomes and rental profitability – to discover which countries presented the best opportunities for acquiring a home.

The Portuguese real estate market may be undervalued, but which Portuguese cities and towns have the cheapest houses for family budgets? Following the OECD’s analysis, we looked for the municipalities where it is easiest to buy a house.

One thing is certain: 2017 will be a remarkable one in the market. The price of housing increased by 7.93% in the 12 months ending last March according to the National Statistics Institute (INE). In the first quarter of 2017, more than 35,000 homes were bought and sold, the highest amount ever registered in INE’s database, which goes back to 2009. Luís Lima, president of the Association of Portuguese Real Estate Companies, estimates that 80,000 homes were transacted in the first half of the year, an increase of 30% over last year.

What is the affordability ratio in your municipality?

Among the most populous counties in the country, it is easiest to buy a home with credit in Seixal: the apartments there are among the cheapest in Portugal and residents’ income is among the highest.

Half of the 2-bedroom apartments for sale in Seixal cost less than 67,100 euros. Those who have access to 20% of this amount (13,420 euros) and can obtain a 30-year mortgage loan for the rest, will pay a monthly instalment of around 208 euros  This assumes the most recent 12-month Euribor rate of -0.16 % plus a spread of 2.5%, the average margin charged by banks as reported by the Observador.

A layout of 208 euros should be within the financial capacity of the residents of Seixal, because it represents 18% of average monthly income in the municipality, which, in 2014, was 1,138.50 euros.

We conducted the same calculation in the 32 most populous municipalities of the country, which account for more than half of the residents of Portugal. In addition to Seixal, it is easiest to buy a home with bank credit in Setúbal, Paredes, Vila Franca de Xira and Santa Maria da Feira.

In which municipalities is it easiest to buy a home?

The Observador analysed the weight of the median monthly payments vs average monthly income in the 32 most populous municipalities in Portugal, which account for half of the national population.

MunicipalityAverage Selling Price – 2-bedroomRequired upfront investment @ 20% of priceMonthly payment
30-year mortgage w/ 2.5% spread
Ave. Monthly Wage
2014
Monthly payment vs. Wage
Seixal67.100€13.420€208€1.139€18%
Setúbal71.575€14.315€222€1.197€19%
Paredes55.000€11.000€170€798€21%
Vila Franca de Xira79.500€15.900€246€1.113€22%
Santa Maria da Feira69.500€13.900€215€965€22%
Amadora95.000€19.000€294€1.289€23%
Sintra89.500€17.900€277€1.188€23%
Gondomar69.800€13.960€216€907€24%
Valongo78.500€15.700€243€978€25%
Vila Nova de Famalicão79.250€15.850€245€944€26%
Vila Nova de Gaia89.000€17.800€275€1.050€26%
Leiria85.000€17.000€263€1.003€26%
Braga87.500€17.500€271€986€27%
Barcelos75.000€15.000€232€815€28%
Loures107.250€21.450€332€1.128€29%
Viana do Castelo92.500€18.500€286€950€30%
Maia115.000€23.000€356€1.174€30%
Almada100.900€20.180€312€1.025€30%
Torres Vedras95.000€19.000€294€954€31%
Oeiras172.000€34.400€532€1.674€32%
Vila do Conde103.000€20.600€319€994€32%
Aveiro117.500€23.500€364€1.122€32%
Matosinhos125.000€25.000€387€1.124€34%
Odivelas105.000€21.000€325€916€35%
Guimarães103.500€20.700€320€844€38%
Viseu113.750€22.750€352€925€38%
Coimbra130.500€26.100€404€1.053€38%
Porto177.000€35.400€548€1.307€42%
Mafra125.500€25.100€388€897€43%
Lisboa279.900€55.980€866€1.561€56%
Funchal212.500€42.500€658€1.092€60%
Cascais270.000€54.000€836€1.157€72%

Source: Observador. Data: Imovirtual and National Statistics Institute, collected between August 25 and 28, 2017. Note: Monthly payment of a 30-year loan amounting to 80% of the median sales price, assuming a 12-month Euribor interest rate (-0.16%) plus a spread of 2.5%; excludes insurance expenses and bank charges. Values rounded.

We found the median price of a two-bedroom home, the most typical residence, in Imovirtual, which, according to traffic data compiled by SimilarWeb, is the most popular real estate portal in Portugal. We counted the 100 most recent ads on Imovirtual for two-bedroom homes in each municipality, although included municipalities with fewer than 100 ads. The municipality with the lowest number of ads was Barcelos, with 42.

We calculated the monthly instalment assuming that the buyer put down 20% of the value of the property. Most financial institutions lend a maximum of 80% of the home’s value. Exceptions are Eurobic (formerly Banco BIC), which finances up to 90%, and Banco BPI, whose maximum is 85%, according to its price tables.

Combining this instalment with resident’s average income, we have shown an indicative affordability rate for each municipality. We used the average monthly income in 2014 compiled by the National Statistics Institute. Although there are no more recent municipal data, wages have risen little since then: they rose 0.5% between October 2014 and October 2016 in mainland Portugal.

The estimated affordability ratio for Cascais, Funchal, Lisbon, Mafra and Porto exceeds 40%, the maximum that the bank accepts when considering housing loans. “Most financial institutions do not lend to customers when loans would amount to more than 30% or 40% of their monthly income,” says Millennium BCP. However, these calculations are simplified: they do not include all other costs involved in buying a home, such as taxes and commissions. They also do not anticipate that the household may have more than one person receiving monthly wages, or that it has other credits that may influence affordability.

Is renting an alternative? Not really

In Funchal, the median sales price of a two-bedroom home would entail mortgage payments of 658 euros per month. Wouldn’t it be better to rent? It is not likely: half of the two-bedroom homes available for rent in this municipality require incomes of 1,500 euros or more.

The high rental rates are not the only reason renting is not a good option. In most locations, there are few properties to rent. When the Observador was conducting its research, there were only 20 two-bedroom apartments available in the municipality of Funchal. We extended the comparative analysis of income and mortgage rates to the 32 most populous municipalities but set a minimum of 20 rental announcements to enter the comparison. Only nine municipalities met or exceeded this minimum. In Guimarães, for example, Imovirtual did not list any two-bedroom homes for rent.

Where is it more attractive to buy instead of renting?

The larger the difference between the monthly mortgage instalments and rental costs, the more interesting a purchase becomes compared to renting.

MunicipalityAverage monthly payment
2-bedroom
Average monthly wageDifference
Vila Nova de Gaia275€650€-58%
Funchal658€1.500€-56%
Matosinhos387€850€-54%
Sintra277€583€-52%
Almada312€640€-51%
Amadora294€550€-47%
Cascais836€1.350€-38%
Oeiras532€850€-37%
Lisboa866€1.200€-28%
Porto548€750€-27%
Coimbra404€450€-10%

Source: Observador. Data: Imovirtual, collected between August 25 and 28, 2017. Note: Monthly payment of a 30-year loan amounting to 80% of the median sales price, assuming a 12-month Euribor interest rate (-0.16%) plus a spread of 2.5%; excludes insurance expenses and bank charges. Values rounded.

The conclusion reached with regards to Funchal can be extended to the other municipalities: the mortgage payment is lower than rents. The difference is the lowest in Coimbra, where mortgage payments would amount to 404 euros versus a rent of 450 euros.

These conclusions apply to the current economic scenario, including current rents, housing prices and the low 12-month Euribor rate. If the 12-month Euribor were to rise by around 2.5 percentage points (to a value close to 2.3%, higher than any rate registered in over eight years), mortgage payments would align more closely with rents in Lisbon and Porto. In Coimbra, an increase of 0.8 percentage points in the reference rate would suffice, leaving a difference of only 0.6%.

This analysis only compares monthly mortgage payments with rents. It does not consider that at the end of the 30-year loan, the debtor will own the asset while the renter will not.

Original Story: Observador – David Almas

Translation: Richard Turner