Swiss mortgages in Poland saga

It all started in mid January 2015 when the Swiss National Bank decided not to defend its exchange rate against the euro. This resulted in a rapid increase in the CHF value not only against euro, but also against other currencies.  For the Polish zloty the increase in exchange rate was from 3. 55 to 4.20 – 4.30 on average (even up to 5 PLN on some days).

The above hit both Polish people and foreign investors, who have their mortgages denominated to CHF.  Its worth explaining that the borrowers were not given Swiss Francs – banks lent Polish zloty and the amount was converted to Swiss francs meaning that the total mortgage and monthly instalment have been always dependent on the CHF-PLN exchange rate.

To understand the weight of the issue it has to be added that approx. 700,000 Polish households have CHF mortgages and most of them were granted with 100% (or more) LTV.

A significant change in the exchange rate resulted in negative equity, but strangely this wasn’t perceived by the borrowers as the main issue. The problem was in the rapidly rising monthly instalments that people couldn’t handle.  Very soon the increasing exchange rates become hot topic in Poland.

The volume and weight of the issue forced the government, the Polish Bank Association and The Financial Controlling Body to step in with some proposals to help the borrowers out.  At the beginning we have seen lots of ideas from extending the repayment period, to conversion back to PLN at the current exchange rate, but none of the proposals come into force.

With the change of government in October 2015 it has awaken borrowers’ hopes for some serious action, but it doesn’t look like it is going to happen. The Polish government will not follow Victor’s Orban example and convert the mortgages at the rate on the day they were granted, which would largely solve the negative equity problem.

The new proposals we have heard recently are just cosmetic and will not mend the situation, that includes the latest proposal from 2^nd August. The Polish government addressed it to borrowers with mortgages in foreign currencies and the limit is 350 000 PLN (or double the amount for married people) per mortgage.  The proposal is to introduce a “fair spread” which is when currency exchange rate is not higher than 0.5% of the National Bank’s of Poland rate. The difference between “fair spread” and spread applied by banks could be paid back to borrowers based on application submitted by them.

The above is not in force yet, but it may be as it is chance for the government to show they have done something without harming banks too much.  Unfortunately, it will not settle down the core issue – negative equity, which doesn’t allow Polish people to move on the property ladder and property investors to sell (according to Polish law the mortgage pledge is not only covered by the property, but also by a borrower).