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Soaring Swiss franc stirs mortgage fears in Croatia and Poland
[WARSAW] Switzerland's shock decision to remove the cap on its currency spread panic on Thursday among Croatian and Polish homeowners with mortgages in the franc who will see their monthly payments jump, while nearby Austria and Hungary downplayed the impact.
The Swiss central bank on Thursday ended its bid to artificially hold down the value of its currency, sending it rocketing almost 30 per cent against the euro.
It also rose nearly 20 per cent against the Polish zloty - bad news for some 700,000 Polish households with mortgage loans in Swiss francs - while the main index on the Warsaw stock exchange slumped by around three per cent.
Around 40 percent of Polish mortgage loans are in Swiss francs, or the equivalent of around 31 billion euros (US$36 billion), according to Poland's Financial Supervision Authority (KNF).
"This is going to be painful," said Piotr Andrzejewski, a 45-year-old Warsaw media executive who has a loan of 120,000 Swiss francs, adding that his monthly payment will go up by 70-95 euros if Thursday's rate holds.
"It's worse for those who have to sell their apartment today while still paying off the mortgage. It's possible that in some cases the value of the loan will exceed the value of the property," he told AFP.
Swiss franc loans were for a long time the best credit deal around. The craze swept across Poland, as well as Croatia and Hungary, in the early 2000s when the franc was weak and interest rates were lower than those for loans in local currencies.
The KNF recommended limiting their number in June 2013, however, after sensing potential trouble down the line.
Polish psychotherapist Roman Kwiatkowski took the currency news in stride: "What can you do? There's no choice but to accept it." "I took out the loan because it was a much better deal than the ones in zloty. I knew it was a risk. Who knows if in the end I benefited or lost out because of it," he told AFP.
"My monthly payments will go up by 50 euros (US$60). Given my salary, it's not a disaster." The Franak association of Croatians with loans in Swiss francs, however, labelled the currency's rise exactly that - a "disaster" - and were to urgently meet with the government over the issue.
Croatia's kuna currency fell by nearly 17 per cent against the Swiss franc.
Some 60,000 Croatians have loans in Swiss francs and the Franak association estimates that the soaring of the currency could affect lives of up to 300,000 people in the country of 4.2 million.
Austria's monetary authorities for their part expressed relief that Vienna had banned new loans in foreign currency in 2008.
The Swiss decision "confirms our strategy of limiting risks associated with loans in foreign currencies for both banks and individuals", said Klaus Grubelnik, spokesman for Austria's Financial Market Authority (FMA).
Hungary downplayed the impact despite the fact that around one million Hungarians took out some 10 billion euros in foreign-currency mortgages - mostly in Swiss francs - before the 2008-9 global financial crisis.
After the crisis the Hungarian government moved to help the loan-holders, who had seen their repayment rates soar as the Swiss franc rose and the Hungarian forint plunge.
"The appreciation of the Swiss franc will not have a significant impact on the debt level," the Hungarian economy ministry said.
"Today's step by the Swiss central bank confirms the government's efforts to reduce FX debt, which have in the past years significantly reduced the country's vulnerability." The government decision to lock in the conversion rates had saved borrowers more than 500 billion forints (1.6 billion euros, $1.9 billion), it added.
"The sharp rise in the Swiss franc (...) would have been a cause for panic in financial markets in Central and Eastern Europe (CEE) a few years ago," said William Jackson, an analyst with the London-based Capital Economics.
"But there are reasons to think that the fallout now should be more manageable."