Croatia considers turning Swiss franc denominated loans into home rental agreements

By bne IntelliNews January 28, 2015

Croatian finance minister Boris Lalovac said on January 28 the government is taking into consideration turning mortgage loans denominated in Swiss francs into home rental agreements. The measure is intended to ease the burden on citizens with loans in the Swiss currency after its recent surge against the Croatian currency kuna.

The model is one of the five proposed by the country’s central bank, Lalovac said in an interview to state broadcaster HRT.

The model envisages that homes bought with Swiss-denominated mortgage loans would be leased to their owners. The owners will thus be able to continue living in their flats while having the right to buy them back. The aim is to reduce the burden on the most vulnerable citizens by reducing their installments. The state is considering providing tax relief for tenants if banks write off some of the principal.

The Croatian parliament on January 23 approved a government proposal to freeze the Swiss franc’s exchange rate at 6.39 kuna for a year.

The fixed rate is the one immediately before the Swiss central bank’s surprise decision to abandon its ceiling of CHF1.20 to the euro on January 15. Since then the Croatian currency has weakened by around 20% against the Swiss franc.

At the end of last year, Swiss franc-denominated loans made up 16% of all lending in the country and some 38% of all mortgage loans were denominated in the Swiss currency, according to data from the Croatian central bank.

The Croatian government has also said that converting loans denominated in Swiss francs into kuna is also taken into consideration. However, the central bank warned that the cost of converting the Swiss-franc denominated mortgage loans into kuna at an exchange rate of 6.39 could amount to HRK3.8bn (€493.5mn).

 

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