ARTICLES
24th March 2006 - Making the correct choice of Loan Currency
Considering taking out a mortgage in Poland? The biggest decision you will have to make is which currency to have the loan denominated in.
Loans in Poland are offered by the banks in Polish zloty (PLN), Euros (EUR), Swiss Franks (CHF), US dollars (USD) and British pounds (GBP).
Almost all Polish mortgages are of the variable rate type, so interest rates are based on prevailing interbank rates plus the addition of the bank’s profit margin (usually between 1-2%).
by Andrew Balfour
The current interbank rates for the currencies offered in Poland are listed below. In the last few months, EUR and CHF rates in particular have been on the rise:
PLN 4.13%
EUR 2.89%
CHF 1.36%
USD 5.09%
GBP 4.63%
In recent years, the most popular loan currency in Poland by far has been Swiss Franks (CHF). There are obvious reasons for this popularity – you only have to look at the rates above to see its attractiveness when compared to other currencies.
Approximately two thirds of Polish mortgages are denominated in foreign currencies, which is a source of concern for regulators, who are considering introducing curbs to restrict access to such loans and protects borrowers from potential risk. Whilst banks are hedged in their exposure to foreign currencies when granting mortgages, borrowers are generally not.
These concerns are not as relevant to foreign investors who wish to secure a mortgage in Poland. The best advice for minimizing risk is to choose the loan currency which matches your income currency – for example, we advise borrowers from Euro-zone countries such as Ireland to choose Euro loans, which offer competitive rates of interest.
The majority of foreigners buying Polish real estate are looking to rent their properties in order to offset mortgage repayments costs, and banks are beginning to offer buy-to-let mortgage products targeting this market. As this income will most likely be received in Polish zloty, borrowers should consider the option of a mortgage denominated in Polish zloty.
Other factors are also contributing to the increasing attractiveness of the Polish zloty as a choice of currency for loans in Poland:
- The central bank of Poland recently lowered its base rate to 4%, a historic low. This compares to a climate of rising interest rates among the other currencies offered in Poland.
- Poland will be joining the single European currency in the future. Of the ten new entrants to the European Union in 2004, Poland is the only country yet to specify a timeframe for joining the single currency, though reasonable expectations are that it will happen sometime around 2012. When it does, mortgages denominated in PLN will become EUR loans.
- Polish banks are charging lower margins on loans denominated in Polish zloty and promotions are more common.
Potential borrowers need to be aware of the risk of taking out a foreign denominated loan. Repayments will change according to movements in currencies. Whilst Swiss Franks remain the cheapest loans, less risk-averse investors will continue to choose this loan option, and there is always the option of re-financing in the future and choosing a different currency.
Contact us if you have more questions
Figures and information provided on this website are meant purely as an indicator of the loan products available through our affiliated mortgage lenders. Specific questions, such as those regarding commission, redemption penalties and paperwork requirements, should be aimed directly at the mortgage lenders themselves.
Your home may be repossessed if you do not keep up repayments on your mortgage.
The value of your loan repayments under a foreign currency mortgage can fluctuate in value if your income is not paid in the same currency.
