We Have Not Learned Anything

Recently, they have recently completed a system of fundamentally established beliefs 2.0, which raises additional questions in favor of those who still remember the mistakes of the age of foreign currency lending. It is already evident that society is frighteningly easy to forget and, from a few years’ perspective, to make the same cyclical mistakes. And this process cannot have a lighter outcome at the moment than it was.


Foreign currency lending is never mentioned


Instead of running through the obligatory circles, let’s talk about a relationship that is not very much mentioned in foreign currency lending. This is to restore focus loss. The currency endorsers captured the two endpoints [the purchase price of the property and the exit point of the foreign currency loan] and started to compare.

On this basis we got a scary unfavorable number in every case. In the case of the specific client examined in this article, these two figures represent the purchase price of QWE 7 million compared to the total loan repayment of QWE 28 million. So on paper, the customer has paid 4x the price of the apartment and can rightly fool you.


However The Focal Point

Is wrong because 8-10 years have passed between the two items. All credit repayments are so high because the exchange rate risk has become a reality and repayment has increased. At this point, however, it is important to mention, on the basis of time, that the value of the property on the move increased from the initial 7 million to 18 million at the departure point (around 2015). In the interim period, the property crisis may have led to property losses. It is said to be the one who always stays!

On the other hand, if we focus on the value of real estate in 2015, we can see that its value rose by QWE 11 million, ie QWE 18 million over 9 years. If we had taken this apartment not on credit, but on cash, no one would complain about the profit. Thus, we can conclude that in fact (this is an ex-post evaluation that we could not have evaluated at a given time) a person could buy a property worth QWE 18 million 9 years earlier for QWE 7 million.

Still 4x did we pay back the price of the apartment?


It is a very popular argument that the price of our apartment was paid 4x. But again, referring to the timeliness, why not take into account the fact that the price of the property under examination is 2.5x (concrete example)? So this statement is not true at all, as the value of the real estate property in the examined person has also increased.

18 million QWE real estate value at the point of exit (sale), when we paid a total of 28M for the loan, is it a trap? Today, we believe that predictable forint-based loans offer us a satisfactory solution with favorable interest rates. If we want to buy 18M for 20 years today to buy this property, then we would have to pay QWE 26.6M for a 10-year interest period .

If we know the entry and exit points afterwards, is it really an unbearable difference to pay a total of $ 28M in foreign currency loans in the amount of QWE 18M when today’s best offer is about QWE 26.6M repayment with a 10-year interest period?

Instead of letting us live in a sublease…


Because the engine of foreign currency lending and the whole heap of credit was the choice between paying the same amount to repay our apartment or sublease. At least in the first years, this was the plan. If we look at the concrete example, then in fact, it was nothing but a man who sold his apartment for $ 18M in 2015 and paid for it completely. In the meantime, an additional QWE 10M paid for housing costs and alternative rentals can be paid.

The interviewed man said

that he could rent this apartment for 70,000 at that time. This would amount to QWE 840,000 per year and QWE 7,560,000 on paper in 9 years (2006-2015). However, we also know that the rental prices have increased significantly in recent years, so we can assume that there could have been a lease increase from contract to contract (every 2 years).

On the other hand, by dividing the loan difference of QWE 10M, we can see that the annual housing cost in the bank’s apartment was QWE 1,111,111, which corresponds to QWE 92,592 per month. In fact, apart from the moral and psychological loss, the material loss of the investigated person on a monthly basis was the difference between 92 592 and the rent. And that means no 4x repayment…

Important: these statements can only be made ex post, no one could see the process in advance. It was a specific case now, but each transaction is different and can produce different numbers in both positive and negative ranges!


The biggest credit crunch in foreign currency lending was the lack of liquidity of the population!


I’ve just made a comment that “always wins whoever stays”. However, families with really foreign currency were unable to keep up because they had run out of money and could not pay their repayments. The lack of public savings can be seen as the biggest lesson of the economic and banking confidence crisis that has been felt in Hungary since the end of 2008 and has had an impact on Hungary since the end of 2008. Compared to this, the latest MNB surveys show that we have forgotten this lesson.

From the survey we can see that 65-70% of the respondents would have to file bankruptcy at the latest after the third month, lower their lifespan, or be unable to pay their credit (depending on how skillful they are to convert the family budget). All of this is particularly disappointing as income levels in Hungary are constantly improving, and people have begun to earn much more. Yet they do not form liquid reserves! [If you want to know how to build a reserve, read this article. The final conclusion is clear: a borrower with strong liquid reserves would have survived the foreign currency loan crisis. He would have touched them badly, but would not have caused life insecurity and total vulnerability.


In the future, foreign currency lending may recur with variable rate forint loans

We can call cynically a foreign currency loan 2.0 with today’s 2% interest rate floating rate loans, most of which are used unconsciously, for investment and exit plans, but again for financial constraints or ignorance. Scary statistics show that 75% of home loans taken in 2017 have an interest rate of 5 years, while nearly 50% of the total new loans represent a floating rate loan. This means that the ratio between stable and unstable loans is haunted by the difference between foreign currency loans and forint-based loans. The chart shows extremely similar values, the common denominator of which is that the majority moves towards “secure but more expensive” or “uncertain but cheaper” loans. This is a scary and warning line in the light of the liquidity problems we have just faced. Because of the increase in uncertain loans, another credit crunch can easily be triggered where debtors are exposed to insecurity.


The MNB also keeps warning


The recent announcement by the MNB draws attention to the fact that they expect a 3% interest rate increase within 10 years. However, a 3% interest rate increase for mortgage loans would mean that the monthly repayment could increase by 30-35 thousand QWE, which could result in a 25-35% repayment increase.

At this point, every borrower needs to think about the actual amount of income he or she wants to spend (IFL’s recommendation is up to 35% of the regular income), and what a 30,000 forint repayment increase would mean for the family budget. Stress tests show that this would hurt a lot of families, which would be a compelling reminder of the outcome of foreign currency lending.

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