Around 10 percent of the value of new loans for the purchase of a house were allocated to foreign citizens, according to estimates by the Bank of Portugal (BdP). This growth is explained as being due to the high demand from foreigners for housing in Portugal and by the fact that these buyers are now increasingly of working age.

According to a report by DN "Credit to foreign citizens (residents and non-residents) has increased in the recent period, but continues to have a small weight", says latest Financial Stability Report, which also reveals that "of the value of new credit operations in 2021 and in the first half of 2022, 10% was granted to foreign citizens". DN/Dinheiro Vivo questioned the supervisor about the nominal value of the loans in question, but an official source clarified that "the requested information includes an estimated component, which is why the reference in the Financial Stability Report is a percentage and rounded to the nearest decimal point".

But if we look at the weight of foreigners in the stock of housing loans granted by banks - that is, not only in new loans but in the total amount on the banks' balance sheets - there is an increase. There was an increase from 6.4 percent to 7 percent between the end of 2019 and June 2022.

The Bank of Portugal also notes that home loans granted by national financial institutions to foreign citizens tend to have lower risk indicators. The loan to value ratio (LTV) is lower and contract maturities are also shorter.

More foreign buyers

This increase in home loans granted to foreign citizens coincides with a strong appetite for national real estate. "Housing transactions by non-residents have increased significantly in the recent period, in particular involving buyers residing outside the European Union", indicated the Bank of Portugal.

The Bank of Portugal concludes that this external demand has contributed to the increase in property prices "The regional heterogeneity of demand from non-residents, contributes to a differentiated evolution of prices between regions. In particular, in the recent period, marked by the increase of demand from non-residents, the growth of house prices has been more accentuated in regions where their weight is higher and the percentage of transactions financed by credit is lower", reads the same document.

In the second quarter of 2022, the median house price grew, year-on-year, by 19.8 percent in the Algarve, 14.5 percent in the Metropolitan Area of Lisbon, 11 percent in Porto and 10.8 percent in the rest of the country. "In aggregate terms, the percentage of transactions financed using domestic credit has increased in recent years, but remains 25 percentage points below that observed in 2009", details the Bank of Portugal.

Reflecting a greater intensity of demand from non-residents in certain areas of the country, the weight of credit in housing transactions differs significantly by region. In the Algarve, the percentage of transactions financed by home loans, in 2021, was around 20 percent. In other words, the majority of property purchases were paid for in cash or using credit from foreign banks. In the Metropolitan Areas of Lisbon and Porto, it represented around 60 percent and 70 percent of the value of transactions, respectively, reaching more than 80 percent in the remaining regions.