Mortgage holders in European countries like Hungary, Poland, the Czech Republic, Romania and Croatia are struggling to pay back mortgage loans denominated in Swiss francs, as the currency soars. Eastern European homeowners had taken on Swiss franc mortgages before the financial crisis because interest rates in Switzerland were low and the currency was considered stable.
By the time the financial crisis began, two-thirds of mortgage loans in Hungary were denominated in Swiss francs. Back in the summer of 2008, a Swiss franc could get 160 Hungarian forints, now its closer to 248. As of May 31, 64% of Hungarian household mortgages were denominated in foreign currencies, according to The National Bank of Hungary.
To prevent a crisis, officials prevented banks from foreclosing on loans in the first quarter of the year and they have set an artificial exchange rate of 180 to let homeowners convert their loans into forints without going belly up. Those who do opt for the deal will however have to pay the difference starting 2015, according to SwissInfo.
Meanwhile, Hungarian local governments have also asked Prime Minister Viktor Orban for a one-year delay on principal repayments, according to Reuters. In 2007-2008, local governments borrowed 600 billion forints to co-finance European Union funded development projects and were expected to begin repayments three years on. Now they want to delay payments on over $3 billion worth of Swiss franc loans.
The Swiss National Bank acted today to curb the currency, but market uncertainty is expected to keep the franc strong. The move will be a relief to Hungarians, that are also hoping to stave off repayments till the forint makes some gains.