Hungary: Controversial Swiss franc loan law goes into effect

Central European borrowers loaded up on cheap Swiss franc and euro loans (mainly from Austria and Switzerland) in the lead up to the credit crisis because of higher nominal rates in central Europe. When the crisis hit, these loans became expensive overnight. In Hungary, one of the hardest hit due to currency depreciation, the government has legislated a fix that goes into effect today.

Austrian daily Der Standard writes:

Starting today, borrowers can repay foreign currency loans in advance – Experts forecast a drop in prices on the real estate market

Budapest – In Hungary, the controversial law on foreign currency loans has been in force since Thursday. It allows mortgage borrowers an early final payoff of their foreign currency loans at a fixed exchange rate that is cheaper than on financial markets.

Through 30 December 2011 those affected may announce the repayment, which must then be made within 60 days. If the borrower meets all requirements, banks must accept the repayment and bear the resulting burden. Criticism of this approach in Hungary came mainly from Austria – both from the banks and politicians.

The legislative fix benefits only those bank customers who have taken up their currency loan at a rate of less than 180 forint to the Swiss franc and less than 250 forint to the euro. The banks are obliged to honour these exchange rates for repayment and pay any additional costs. This solution has generated "enormous outrage" throughout Europe, according to the online edition of the weekly newspaper "HVG".

Even a low response rate for final balloon payment settlements in foreign currency loans could inflict "heavy casualties" on the financial system, the newspaper wrote. The "rush" on the banks can now begin. According to the online edition of the daily newspaper "Nepszabadsag", experts predict that the new legislation will cause a price fall of 5 to 10 percent in the Hungarian real estate market.

Source: Umstrittenes Frankenkredit-Gesetz in Kraft – Der Standard

1 Comment
  1. David Lazarus says

    The problem is that many will not be able to raise the money to exit these foreign currency loans. This is probably a populist measure that would enable many to reduce their debt burden.

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