VIENNA, May 28 (Reuters) - The Swiss franc’s surge this year has sharply widened the gap between what Austrian households owe for mortgages in the Swiss currency and what they have saved up to repay them at maturity, the Austrian National Bank said on Thursday.
“The ‘coverage gap’ has risen clearly from 3.1 billion (euros) at the end of 2014 to, by our estimates, 6.1 billion in the first quarter of 2015,” Governor Ewald Nowotny told a news conference on the central bank’s annual report.
Franc loans were for years popular in Austria and other countries because of Switzerland’s relatively low interest rates but servicing costs shot up after the Swiss National Bank removed its cap on the franc versus the euro in mid-January. The franc gained 58 percent versus the euro in the first quarter.
Statistics from the Financial Market Authority show foreign-currency loans to private households stood at 24.6 billion euros ($26.8 billion) at the end of 2014 -- more than 96 percent of them in Swiss francs -- or 18.3 percent of all household debt.
Austrian regulators effectively banned mortgage borrowing in Swiss francs in 2008 because of the risk that households would not be able to repay the loans at maturity, mostly from 2019.
The franc’s gains this year have dealt a double blow to tens of thousands of Austrian homeowners who not only owe more in euros but also have seen the financial crisis weigh on the performance of investment vehicles often used to repay loans.
Nearly three quarters of foreign-currency mortgages due at maturity are backed by such repayment vehicles. Only a fifth get both interest and principal paid in regular monthly instalments.
Banks including Erste Group and Bank Austria have said they won’t take big hits in Austria from the franc’s rise. Raiffeisen Bank International has no Swiss franc retail loans in Austria and has played down the impact in eastern Europe, where franc mortgages are also common.
$1 = 0.9187 euros Reporting by Michael Shields; Editing by Catherine Evans