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   Many of Bradley, Edwards and Associates clients have financed their local property investments from local mortgages, predominantly denominated in Swiss Francs (CHF) and have suffered in recent years due to the weakening of the Hungarian forint (HUF) against the franc. Now that the Swiss National Bank has changed its policy and removed peg which kept the franc at 1.2 parity to the euro, the huge turmoil sent the CHF to stellar heights against the HUF. The question that we have been asked by many of our clients is – “Does this mean the end for your property investment because of my local CHF denominated mortgage? ”

 

The good news

 

No it is not. As part of the Hungarian government’s attempts to ease the burden of the foreign currency borrowers, a resolution was passed last year to convert all foreign currency mortgages to local currency at a set exchange rate.

At the time of the resolution this may have been seen as a controversial step, but in light of the recent developments the action taken by the gouverment is considered extremely fortunate.


What does it mean in case you are an investor based in euro or British pounds?

Let’s say you had a CHF mortgage at the beginning of December 2014 with the outstanding value of CHF 100 000.  According to the regulations, this debt is to be converted this year at the CHF/HUF exchange rate of 256.47, so once the conversion is done, you will end up with a mortgage of HUF 25 647 000.

That is currently (on 19 January 2015 at 9.15) is EUR 80,242.16 or GBP 61, 382.89. Had the fixed rate conversion not been done, the same CHF 100 000 debt would worth EUR 99 990 or GBP 76 376,68 today. As you can see, you have received a substantial Christmas gift without knowing about it.

(Please note that currency calculations were made at rates available at the time of writing and are not updated, whereas the exchange rates fluctuate continuously.)

 

The bad news

The fixed rate conversions do not apply to loans that have been terminated – foreclosed, repaid, etc. - before 2nd of February 2015. That means that in case the mortgage contract has been cancelled previously and it has taken effect before the above date, and that loan was denominated in Swiss francs you are fully exposed to the adverse effects of the currency turmoil.

 

The other side-effect of this move is that the HUF has weakened against the Euro and the GBP as well (although the devaluation was far less, approximately 5% over the last 3 months) and it means that your property is worth less in foreign currency as buyers are using the local currency prices when purchasing property.

How does the new legislation
change your position?
What if your mortgage
obligation has been sold?
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