Property dream turns to nightmare for Eastern Europeans with Swiss franc loans

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Property dream turns to nightmare for Eastern Europeans with Swiss franc loans

Property dream turns to nightmare for Eastern Europeans with Swiss franc loans
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An epidemic of ruinously high mortgage payments and negative equity is afflicting Central and Eastern Europe.

People who bought into the dream of owning property in former communist states such as Romania are finding the price is now too high.

To get lower interest rates people like Daniela Gornea and her husband took out mortgages in Swiss francs rather than local currencies, but the franc has shot up in value leaving them crushed by debt.

The Gorneas have a 65,000 euros loan in Swiss francs for a 72 square metres three-room apartment in a residential area in south Bucharest.

She said: “I think I’m about to lose this house. I don’t have any other option as 740 Swiss francs is 3,700 or 3,800 Romanian lei out of our total monthly income of four thousand lei. I can’t make any plans so it’s clear to me that I’ll lose the house.”

Many borrowers now owe more on their homes than they are worth and would suffer significant losses if they sell as property prices have fallen since the boom years.

They complain the risks were not explained to them by lenders.

Adrian Vasilescu, an advisor to Romania’s Central Bank, said the authorities can do nothing at this point and will not intervene, but “the government has been talking with the banks involved, calling on them to negotiate with borrowers on a case by case basis to try to find solutions”.

The Hungarian government has been more pro-active. Last November it forced banks there to convert Swiss franc loans to the local currency at the exchange rate of the time.

That option became much more expensive for others like Poland, Croatia and Romania when the Swiss franc skyrocketed in mid-January after the Swiss national bank unpegged it from the euro.

The Polish authorities are urging banks to take voluntary steps to help borrowers.

The government of Croatia, where there are 60,000 such loans, froze the franc-kuna exchange rate at pre-Jan. 15 levels for one year to help borrowers.

The International Monetary Fund has written to Romania’s finance minister urging the government not to peg bank loans to old exchange rates as borrowers want.

The Swiss national bank estimates that there are 230 billion francs (220 billion euros) worth of such mortgages outstanding in Central and Eastern Europe.