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Swiss Franc loans may cost more

The scrapping of the minimum exchange rate by the Swiss National Bank may increase the financial burden on those who have bought property with loans denominated in Swiss Francs.

Swiss Franc loans may cost moreTHOSE who purchased property in Cyprus and elsewhere with the aid of a loan denominated in Swiss Francs will be devastated to learn that the Swiss National Bank scrapped its minimum exchange rate today.

The unexpected end to the three-year-old cap saw the Swiss Franc jump to a record against the Euro and rise to its highest in more than three years against the dollar following the announcement.

The decision by the Swiss National Bank comes just one week before policymakers from the European Central Bank (ECB) meet to discuss ways of stimulating European economies. One aspect to be discussed was creating more Euros (quantitative easing), which in itself will put downward pressure on the value of the Euro against other currencies, including the Swiss Franc.

In Cyprus thousands of locals and foreigners were sold home loans denominated in Swiss Francs by the local banks and their agents during the boom years of 2007 and 2008. But between 2008 and 2011 the Swiss Franc nearly doubled in value and in September 2011 the Swiss National Bank announced that it would enforce a minimum exchange rate of CHF 1.20 to the Euro.

According to the Cyprus Central Bank, Swiss Franc loans amounted to nearly €3.2 billion in November 2014 compared to €1.6 billion in 2006. (The figures are not adjusted for exchange differences.)

Now that the bank has scrapped its minimum exchange rate, the cost of servicing loans denominated in Swiss Francs may rise again.

Readers' comments

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  • Richard says:

    So – from this thread – there are those who are lucky and those who are not. This is massively MISSING the POINT!

    With any ‘professional’ long term investment – there should NEVER be this level of gambling and corruption involved. If you want to sell someone a pension – you have a 200′ wall of regulations to scale and get can swept away in a tsunami of legal prosecutions if you are inept.

    Million pounds ‘worth’ of dodgy property in a foreign country? Step this way…

    The risks were not made clear. People lied. Ethics went out of the window. It’s a huge mess.

    Lost a huge chunk of my faith in white collar “professionals”. The only thing that separates some of them from people in prison is the right certificates on the wall and the right environment to have been born into.

    Legal vs ethical. Now there’s a good essay to get stuck into at some point..

  • Ron Richardson says:

    So the same old problem re-emerges. The ridiculous situation when someone’s mortgage goes soaring once more. Obviously these mortgages involving second and third country’s currencies should NOT be used.and should be changed as soon as. People take advice from sales agents and banks then get stuffed. Dabbling in forex should be left to professional dealers only. To sort it all out the banks need to back to the original deal and rewrite it. I agreed to pay £900 a month, high enough for my budget, not £1600 and rising. I’m one who will honour my agreement but there is a limit for everyone. A letter from the banks needs to be sent to everyone involved and it needs sorting NOW. Not sorting this out says the banks are happy to profit from it. Then they need to fail for offering bad advice.

  • chris c says:

    @Chris C on 2015/01/16 at 10:19 am – If more borrowers default on their repayments, the non-performing loan problem can only get worse – and that will not help the banks here one little bit.

    That is exactly the point Nigel, the Banks caused a lot of the damage in the first place! Had they honoured their contracts the Swiss franc mortgages would be OK as the lowering interest rates offset the change in exchange rates. They are so short sighted they kept the money and as Gary pointed out, told you “don’t worry”. They only look at one side of the equation and didn’t have the foresight to look at the damage their stupidity causes. By making it worse for borrowers they did produce NPLs, will they do anything about it now was my point.

    My closing statement was – Perhaps they would like to pass on some of the reduction now and save people further misery, or will they just help increase the NPLs?

  • Steve says:

    @ Nigel

    !992 I was working near Moenchengladbach in Germany, earning DMarks and with the lousy interest rates I had moved money in a multi- currency fund in Guernsey. British pounds, Italian Lira and Spanish Pesetas. On that afternoon I lost a packet, but as it was going dark there was a modest upturn in the market. Had those currencies hit the bottom and were going to go up, or was tomorrow going to be more rivers of blood? Your first loss is your best loss – everything back into Dutch Guilders and DMarks. The next day the Peseta and the Lira went south quicker than a Yorkshire miner’s whippet. I lost my shirt, but at least I kept my trousers.

    I must add that my pension scheme, the long-term investment, was in………Schweizer Franken.

  • AJWC says:

    The banks must resort back to the original contracts (% interest) this will help borrowers in the short term who HAVE continued to honour their contracts.

    Thus giving an opportunity for borrowers to renegotiate the loans back to € or £ (or the currency they get paid in!)

    Otherwise people will really think it’s time to hand back the keys. This won’t help the banks with NPL. They surely do not want thousands of properties on their books.

    I was hopeful of the banks working with the borrowers, but it seems if you have paid to terms they just believe you can afford it and brush you off!!!

  • Gary says:

    The point Chris C makes regarding interest rates is particularly important. I remember when the Swiss Bank dropped it’s interest rates the response by the Laiki Bank was to raise theirs. The wording on the letter I received at the time was along the lines of “don’t worry, you’ll be paying roughly the same amount as you initially agreed to pay”. What they meant of course is they’ll take the money I would have saved thank you very much. Despite the problems the banking sector is facing in Cyprus there is an obligation here to revisit the interest rates charged on Swiss Franc loans. In addition, interest rates have dropped slightly on most loans but not for “holiday house” loans. Discrimination to say the least. If the banks don’t react in a positive manner here then the likely outcome is a rise in NPLs.

  • @Chris C on 2015/01/16 at 10:19 am – If more borrowers default on their repayments, the non-performing loan problem can only get worse – and that will not help the banks here one little bit.

  • @Steve on 2015/01/16 at 10:45 am – I remember the UK exit from the ERM in 1992 very well. We were in Cyprus at the time and had just concluded a deal to buy some land. The money arrived just a couple of days before Norman Lamont pulled us out. We were very lucky!

  • MartynG says:

    Typically cool Swiss move, and, if you are going to make major world-shaking news, not much point really in ‘leaking’ it first. And whilst world markets reverberate with the shock, yet more misery for those poor souls who were ‘mis-sold’ (aka ‘conned into buying’) mortgages and loans denominated in Swiss Francs to buy, furnish etc their Cyprus properties. We all feel for those so badly affected and should do whatever we can now to support their strengthening efforts to ‘unravel’ the scandalous Swiss Francs mess.

    @Richard raises the prospect of WW3 – not yet but there are enough storm-clouds developing to potentially cause major banking/economic seizures , especially as I think we all realised, the Eurozone plasters, bandages and financial ‘spin’ have failed to stem the downward spiral of the ill-conceived Euro project since global economies hit the buffers in 2007/8. Watch the Euro fall further when SuperMario’ announces, at last, he’s been hinting at it for months!, – next week – the Eurozone version of QE. Cyprus has more than enough of its own mega-internal problems to cope with and could still need to exit the Euro – with Greece and, quite possibly others, within the next few weeks.

    Hang on to your Storm gear guys, it looks like times are going to get even rougher!

  • Steve says:

    We all make mistakes, but some people are so unlucky and have to pay mentally, physically and financially for the rest of their lives. One example is the guilty party in a bad car accident, another is a Swiss Franc mortgage if income is not based on Swiss Francs.

    The Swiss National Bank has done this because it already knows that the ECB is going to begin quantitative easing; printing Euros with no assets to back them up, basically a devaluation that triggers a ridiculous situation where the value of the Euro stays constant against a capped Swiss Franc, when it should fall. In the nineties the European Exchange Rate Mechanism, based on the ECU, began to fail because Spain and Italy had their currencies held at rates against the ECU that were out of line with their low interest rates and high inflation so everyone borrowed money and had a ball, but it was unsustainable. The UK ran up massive credit liabilities and had to devalue Sterling and leave the Exchange Rate system in 1992 after only two years – a complete disaster for the Tories and Nigel Lawson in particular.

    The Swiss are just being prudent, as they always are, which is why their interests rates are so low and their exchange rates are so high.

  • Chris C says:

    Any further problems with the Swiss Franc loans will be down to the banks here in Cyprus. When the loans were taken most of the agreements would be for interest to be charged at 1.5% or 2% above 6 month Libor. The Swiss Franc Libor has now moved into negative territory so if the banks honoured the contracts then people would not be paying the 3.5% or 4% they are being charged.

    As the exchange rate has varied so has the LIBOR rate but the banks went back on their contractual agreements to grab more profit.
    Perhaps they would like to pass on some of the reduction now and save people further misery, or will they just help increase the NPLs?

  • richard says:

    No-one in Switzerland wanted this either. Exports are wrecked – companies over there have seen their shares tumble with this news.

    I’m seriously wondering if the world’s banking elite are attempting to initiate WW3.

    Oh – and make themselves a few more bob in the process…

  • destroyed p says:

    Μας κατεστρεψαν.. Σημερα ηταν το τελειωτικο κτυπημα για τους δανειζομενους σε ελβετικο φράγκο. Εχει βγει καμια αποφαση στην Κυπρο ρε παιδια? Κοιταξα παντου και δεν εχει εκδικαστει καμια υποθεση δανειου σε ελβετικο φραγκο και δεν εχει παρθει καμια αποφαση μετα και την οδηγια του ευρωπαικου δικαστηριου. Η Κυπρου και η πρωην Λαικη δεν υπαρχει περιπτωση να συμφωνησουν σε κανενα διακανονισμο. Παιρνουν ολες τις υποθεσεις μεχρι το τελος… Απελπιστικα πλεον..

    Approximate translation by the editor

    We destroyed .. Today was the final blow for borrowers in Swiss francs. No decision has come out in Cyprus guys; I looked everywhere and was not heard of any case loans in Swiss francs and it is taken no decision after the Directive of the European Court. Cyprus and the former People We can never agree to NONE settlement. We take all cases until the end … hopelessly longer ..

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