Strength of Swiss Franc Affecting Eastern European Property Markets
26 August 2011
The rising value of the Swiss Franc against both the US dollar and the Euro is causing problems for eastern Europeans who have taken out mortgages in Swiss Francs, many of whom are now struggling to make repayments. In 2004 and 2005 many Eastern Europeans chose to take out loans in Swiss Francs or other foreign currencies to get better interest rates. Now, the value of the Swiss Franc -- a safe-haven in an economic hurricane -- is soaring.
It's estimated that around half of all home loans in Poland are in Swiss francs, which is around $46.1 billion, while the figure in Hungary is estimated to be 40%, or $45.6 billion. In Croatia, Swiss franc home loans are thought to account for around 16% of all mortgages, and many of these people are now struggling to repay their loans. As a result they are spending less on other commodities which is slowing down economic growth.
Capital Economics has predicted that the increase could knock off around 1% of consumption in Hungary and 0.5% in Poland. In Zagreb, the banks have reached an agreement to fix the exchange rate for five years at 5.80 kuna to the franc to help Croatians who have a Swiss franc mortgage.
The Hungarian Prime Minister has described this problem as being one of the most severe challenges facing the government, and an incredible 25% of the 1.22 million mortgage holders in the country were late in paying at the end of June, with most of these having foreign currency loans.