Taking A Financial Gamble Is Risky For Homeowners

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Gambling on financial matters over which you have no control often looks a good idea at the time but can go wrong with a vengeance.

Thousands of expat home owners are finding this out to their cost as the value of the Swiss Franc soars.

Until a couple of weeks ago, the value of the Swiss Franc was pegged against the Euro.

Then, the Swiss saw quantitative easing on the horizon and quickly uncoupled their currency from the fate of the euro.

This sudden action sent shockwaves around world financial markets, and the ripples are still spreading out.

Franc talking

One problem for expats in Cyprus and Eastern Europe, as well as other home owners, was in recent years they bought into Swiss Franc denominated mortgages because the interest rates were seen as much lower than the rates of local currencies.

But central bank monetary policy is not a tool to appease mortgage borrowers.

According to the BBC, around 40% of all Polish mortgages are taken in Swiss Francs, but the franc has surged in value by more than 20% against the zloty, making mortgage repayments soar – and they are still rising.

Poland is not the only place to suffer – besides Cyprus, many Australians had a taste for the Swiss Franc, as well as borrowers in Austria, Hungary, Croatia, Romania and Serbia.

Governments and central banks can do little but stand and watch because any fiscal action they take is likely to make the value of local currencies fall against the franc, just making an unbearable problem even worse.

Losing control

Many banks are suggesting their customers should switch the loan to a local denominated currency before their losses billow out of control.

One borrower with a £26,000 loan denominated in Swiss Francs in 2008 now has a debt of £90,000 thanks to currency movements.

Of course, investors can only make decisions based on the evidence they have available at the time, but the problem is the temptation to make a quick buck.

In time, currency and stock markets will ride out Eurozone QE and the resulting effects on the Swiss Franc, so long term investors can repair their finances.

It’s the speculators looking for that quick profit that suffer, especially if they do not have the cash resources to cover their losses.

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