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Post Poland's Swiss Franc Mortgages; from Justyna Bialowas
Created by John Eipper on 02/18/15 1:33 AM

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Poland's Swiss Franc Mortgages; from Justyna Bialowas (John Eipper, USA, 02/18/15 1:33 am)

JE: WAISers know my sister-in-law Justyna Bialowas. I asked Justyna about the impact of the "Swiss Mortgage Crisis" on her friends and co-workers in Warsaw.  Fortunately, as she explains below, Justyna avoided the Swiss Surprise with her own apartment:

It's common knowledge that when you work in 9-5 mode, you have to spend some of your time on the Internet. It's not that you regularly surf and goof off, but you just dive into it from time to time. So that day, I made a quick jump on the news sites and saw this item: "Swiss government decided not to support its exchange rate any more."  Then I checked the Swiss franc price (5 zlotys) and shared it aloud from my work cubicle. "Stop it now!" someone cried, "This is really not funny!" my colleague said with real consternation. "But it's true, check the news!"

And then the panic started. Out of 15 people in my office, half of them became pale. While the price of the franc kept jumping, the news from Switzerland was arriving in "live" mode. My colleagues began calculating their new mortgage rates and called this day Black Thursday.

How did it happen that almost 700,000 Poles have been paying their mortgages in francs, not in the national currency, the zloty? Well, it's quite simple. Back in 2007 and 2008, this was the most popular offer from most banks. You could get almost twice as much financing for the same price. To support their cause, financial advisers explained that the price of the Swiss franc had not changed for 20 years. So, just before the 2008 crisis we had a real estate boom that obviously led to the Swiss franc mortgage peak. After the crisis, Polish banks gradually stopped offering mortgages in francs or euros. When I started my own mortgage adventure in 2013, the zloty was the only option.

The price of the franc in 2008 was 2.5 zlotys, but on Black Thursday it soared to 5 zlotys and now it is about 3.9 zlotys. One of my colleague's mortgage payments increased from 1400 to 2000 zlotys per month. When you earn 5000 zlotys a month, 600 zlotys is a lot. Before Black Thursday our mortgage payments were the same, yet her apartment is twice as big as mine. I really appreciate both my new place and my type of mortgage now!

What is happening now? There are some facts in the big picture:

--Poland's Ministry of Finance urged major banks to meet and come up with a solution. People got angry and they were supported by the popular bloggers and journalists. Their arguments were that: banks took advantage of people's ignorance and should now take responsibility for this, banks have benefited from the spread rates and there is always space for profit for them, banks could follow in the Hungarian footsteps and partially finance mortgages.

--The supposed solutions: 1) banks agreed to apply the negative LIBOR which could decrease the clients' rates; 2) banks agreed not to demand an additional financial buffer from their clients. At the same time though, it was decided that the Polish economy would not suffer from it because people paying Swiss franc mortgages have been given salary raises so they can probably afford the new rates.

What is happening from the everyman's perspective?

--My colleague (the one who pays 2000 zlotys instead of 1400) received a letter from her bank that basically says: "yes, we will apply negative LIBOR to your rate but we are still counting"). She laughs bitterly that if it was the other way around and the bank were able to increase the rates, they would be counting a lot faster! In the meantime she keeps paying higher rates.

--My friend who planned to buy a new computer told me recently that he decided to fall in love with the old one since his mortgage rate went up.

The properties bought in 2007-2008 and financed with franc mortgages are frozen. People cannot sell them because they now owe more on the properties than they are worth. And this is a disadvantage on the secondary real estate market. There are people who would like to buy those apartments, but no one is selling them.

JE comments:  Justyna's colleague was hit with a 42% increase in her housing costs--overnight.  If this situation affects 700,000 Polish homeowners, there is a major crisis, which inevitably will spiral housing values downward.  Croatia and to a lesser extent Romania are in the same boat.  Hungary "nationalized" many of its mortgages last fall, and political pressure may force Poland to follow suit.  The US "HARP" (Home Affordable Refinance) program may serve as a good model.  We managed to HARP our house two years ago, although to do so required three attempts and jumping through a circus-performer number of hoops.

Thank you for this great explanation, Justyna!

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  • Swiss Franc (Bienvenido Macario, USA 02/18/15 6:27 AM)
    For three years the Swiss franc-euro exchange rate was fixed. Perhaps in anticipation of the Euro-ECB's significant stimulus program, the Swiss National Bank decided to float the franc. So from €1 = 1.5 CHF as of January 14, 2015, the next day, the Swiss franc shot up to .85 per €1.

    This means Swiss bankers don't think the ECB's stimulus program is a good idea. I wonder what the plan is with the Greece debt debacle? The lack of coordination is the EU and ECB's fault. Unfortunately, good solutions are never free.

    JE comments: Now the franc is trading more or less at par with the euro.  How will the overpriced Swiss currency help anyone? We've already seen the mortgage crisis in Eastern Europe. Switzerland's exports will also take a beating.  I'll have to put off buying my Rolex; drats.

    WAISer Patrick Mears was recently in Bern. Pat: can you give us an idea of how obscenely expensive things have become for euro (and dollar) visitors?

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    • What Things Cost in Switzerland (Patrick Mears, -Germany 02/18/15 11:43 AM)
      John E asked about the prices of things during my recent trip to Switzerland. I didn't do a pricing survey, but I noticed that the cost of just a three-day visit was significantly more expensive than those visits have been in the past 7 and 1/2 months (those visits have been frequent). So much so that my visceral reaction is to cut down on the number of these trips.

      JE comments: I'm definitely of the "more value equals more fun" school of tourism. I just checked some booking sites, and a room at the bare-bones Metropole (Bern) will cost you $191 for tonight. If you want a Hampton Inn level of comfort, prepare to shell out $400 or more. Geneva is even dearer, running from $150 at a dump near the airport to $600 or more for a nice room in a central location.

      The takeaway: travel on an expense account, or stay home.

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      • Airbnb and the "Sharing Economy" (Randy Black, USA 02/19/15 3:56 AM)

        When I read John Eipper's comments about the high cost of hotels in Switzerland (see Pat Mears, 18 February), I knew I must tell him about the short-term apartment and home rentals that are available in an emerging rental industry that is sweeping the globe.

        Whether you are in Bern, Switzerland, Paris or Madrid, there are great places available and at prices that are surprisingly reasonable.

        Last March when I planned my several-week trip to France and Spain, using the global rental Website AirB&B, I explored dozens of the hundreds of privately owned apartments in and around Paris online. Some, less than a block from Notre Dame Cathedral, are available for less than $100 per night for two people.

        But first, I queried Holiday Inn Express in Paris. Normally, such very nice hotels in the US run in the $80-$100 per night range, hot breakfast included. In Paris, however, the Elysées Holiday Inn Express ran more than US$350 per night plus tax and no breakfast included. I don't know about you but when I'm bedding down for the night, I don't relish thinking that it's costing me $50 an hour to sleep.

        Instead, I rented an AirBnB-brokered 1-bedroom apartment for less than $90 net a night, 15 minutes' walk to the Eiffel Tower, with included toilet, shower and lavatory in an adjoining room and an included kitchenette and refrigerator for $83 per night featuring a partial view of the Eiffel Tower (see my attached photo, shot at about 11 PM). Cable, flat-screen TV was included. It was on the 6th floor of a Haussman-era building. While the elevator went only to the 5th floor, the short climb to the top floor is not taxing unless you're carrying a lot of baggage. The building included a locked ground floor entrance. With the required cleaning fee and commission, the bill averaged about $90 per night. I've stayed in better and certainly worse here and there.

        In Madrid, which lists 589 apartments and homes on AirB&B, on Calle del Pez, a delightful side street near the city center, I found a secured, 100-year-old but remodeled building with a large, airy apartment that slept three.

        I was treated to a terrific apartment (link to photos below), great mattress and new linens, separate kitchen with clothes washer, stove, kitchen sink, fridge and microwave, large living room with working fireplace, skylights, flat panel TV and cable, a fully-tiled bath/shower that was absolutely spotless and modern furniture on the 5th floor, no elevator, a hundred steps from a subway and perhaps 200 steps to the Grande Via. More importantly, the street was door-to-door cafes, tiny bars, small theaters and a walking environment with only one lane for car traffic.

        It ran me $60 per night (still does, I just checked) plus about $35 for cleaning and another $35 for the AirB&B commission. Ironically, it was owned by a beautiful, charming and helpful Russian woman, Elena, who lives nearby with her Spanish husband.

        Here's the link to Elena's Madrid apartment photos and conditions. https://www.airbnb.com/rooms/531854?checkin=06%2F09%2F2015&checkout=06%2F13%2F2015&s=P3PE

        Both properties were offered by AirB&B (www.airbnb.com)

        See attached photo from my Paris kitchen window.

        Now, for Bern, Switzerland: AirB&B shows 43 rentals in the immediate area ranging from $77 to about US$400. Here is the link to what looks like an apartment in the historic center of Bern for $160 per night, plus a service fee of US$85 for a 5-night booking.


        I watched TV two years ago on the launch of AirB&B, which as it turns out is partially owned by American billionaire Warren Buffett.

        JE comments:  See below.  I've never sampled the Airbnb waters, but this is part of a cultural shift of the last few years:  private citizens becoming hoteliers, car rental agencies, and restaurateurs.  Joel Stein of Time magazine recently wrote a cover story on the "Sharing Economy."  Among other things, we learn that an Italian woman rented his car and got into an accident.


        Anyone want to rent my '79 Cadillac?  Write or give me a call.

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        • Airbnb; Pat Mears at World Trade Institute (Patrick Mears, -Germany 02/19/15 8:00 AM)
          Many, many thanks to Randy Black (19 February) for his kind post today informing all of us about this lodging alternative that I've heard about, but being a creature of habit, have never really investigated. I will pass this on to my wife, who is presently writing a book about Bern--hence the reason for my many recent visits there.

          As a free-lance travel journalist based here in Heidelberg, my wife has been able to negotiate stays with some of the top hotels in Bern (e.g., the Bellevue and the Schweizer Hof) on the understanding that she will produce articles describing her stays. But these overnights, although fairly heavily discounted, are not free and still can be expensive, especially now with the flotation of the Swiss franc. During our last visit, we overnighted at the Volkshaushotel on the Zeughausstrasse in the city center, a four star hotel, but even that was not cheap notwithstanding the discount given.

          This is great information to have, Randy, and I thank you again.

          JE comments: In a separate e-mail, Pat Mears sent me this link to the World Trade Institute in Bern.  Pat's WAIS post has made the WTI website!


          But the WTI folks edited out my comments!  Here's the original:


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    • Switzerland: Beautiful, Expensive, and... (Francisco Wong-Diaz, USA 02/18/15 2:30 PM)
      We were in Switzerland last summer and it was beautiful and expensive. The worst part of the trip, however, was the widespread smoke from the omnipresent smokers.

      We found a truly unhealthy urban environment.

      JE comments: Ah, the Alpine air...

      According to a few websites, a pack of Swiss Marlboros runs 8 francs (U$9 or so), which is far cheaper than Norway, the UK, or even NYC. So for the Swiss, lighting up is a comparatively inexpensive pleasure.

      I found this website with more than you'd ever care to know about national cigarette prices.  For really cheap smokes, try Moldova or Ukraine:


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