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Paying off the mortgage

September 10th, 2011

First reactions are rather critical to a Fidesz proposal to help struggling borrowers pay off mortgages denominated in foreign currencies at favourable exchange rates.

Deputies of the governing conservative parties have proposed the setting of extremely favourable exchange rates for borrowers who want to pay off foreign currency mortgages, mainly in Swiss Francs.

Rather than the current rate of 232 Forints per Swiss Franc, they suggest a 180 Forint rate, which would still amount to a loss of about 30 HUF per Franc, compared to the rate at the time when most contracts were signed. The banks, however, would lose almost twice as much. The markets reacted badly, and shares of the biggest Hungarian bank, OTP fell 10 percentage points.

Writing on the popular Index news website, columnist Gergely Dudás suggests that the proposal would only help the rich, who have few problems paying back their mortgages. Banks would lose hundreds of billions of Forints, while the Hungarian currency would be further weakened, he writes. “Rather than helping those in debt, (the proposal) will worsen their position by weakening the Forint, so all those unable to pay off their mortgages in one fell swoop will plunge further into debt”, Dudás concludes.

One of the few positive reactions to the proposal can be found on the Hungarian News Agency, MTI. Experts at the Equilor investment company told MTI that although the proposed scheme would cause a loss to banks of billions of Euros, in the long run it may lessen Hungary’s foreign debt exposure and thereby result in higher credit ratings.

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