Investors, who have Polish mortgages in Swiss francs (CHF) in Poland, may have had a few sleepless nights recently.

The weak Polish zloty combined with falling property prices translates into LTVs often exceeding the value of the property, which in the long-term (and mortgages are long-term loans) may not have any significance, but in the present can create quite a headache.

The threat is that the majority of the mortgage contracts have a clause saying that if the value of mortgage collateral or the property's value falls dramatically, the bank has a right to ask for additional collateral or change the currency of the loan.

While there's really nothing a mortgagee can do about it, banks have been at pains to point out that, in reality, so long as repayments are not made on time, they won't execute the clause.

But this week we've seen this unwritten agreement between banks and clients has been broken.

There's evidence that so far three banks (Polbank, Noble Bank/ Metrobank and Santander) have been asking clients paying on time to re-negotiate contracts.

This has taken various forms: from asking for another property to be pledged, a higher margin on a loan by 0.5%, additional insurance of the loan, to immediate re-payment of the amount of money that exceeds the value of the property.

If a client doesn't accept the new requirements, banks threaten to end a contract.

And, while it appears that banks are executing their rights stated in contracts, if we take a closer look, it appears that banks are trying to take advantage of clients and use exchange rates fluctuations as an excuse.

The clause in these contracts was actually designed to relate to a dramatic fall in the value of property, something that hasn't happened. In addition, with off plan units, finish adds significant value, which is always taken into account by property valuers.

So, these clauses are now being invoked in relation to a fall in the value of the PLN in relation to CHF, rather than anything to do with the declining value of property.

The Financial Controlling Commission (KNF), regulatory and supervisory body, clearly states that a decline of mortgage collateral doesn't mean that a client's creditworthiness has dropped.

The body is defending CHF mortgagees and has said that banks should not be using CHF exchange rates to increase the cost of mortgages. KNF warns banks that such requirements could be seen as bad risk management and force the KNF to take action against banks.

The view expressed by KNF is shared by the Office of Competition and Consumer Protection (UOKiK), which is taking BRE Bank to court. UOKiK questions some clauses in mortgage contracts that state that the bank can change some terms and conditions and require clients to inform banks about any changes in their financial situation.

UOKiK says that it will take more banks to court before Easter, but doesn't say which banks are on its list.

The fast and prompt response from controlling bodies is good news for those people who were or will be asked to re-negotiate mortgage contracts. It seems that at the moment, the reaction from KNF and UOKiK is the best card that could be played in talks with banks.

But what should an investor do if they find a bank is making such a request?

Firstly, check contracts to see on what basis a bank is demanding changes. Secondly, a client should demand a new property valuation from the bank or hire a valuer on their own. Anyone who bought off-plan should produce the bills they paid for finishing an apartment.

It doesn't appear that this saga is about to be concluded, so we'll keep you posted as the situation develops.

Czech Republic started to feel the impact of the global economic crisis only as recently as the second half of 2008. Consumption, including spending on property, has now slowed down fairly drastically. Falling housing demand has been mirrored by slower growth in the mortgage lending.

During 2008, banks in Czech reported an increase in mortgage sales, but it was widely believed this was at a lower rate than the year before.

Now we have confirmation. The latest data from the Ministry of Regional Development reveals that mortgage lending in 2008 plunged by some 20%.

The number of mortgages granted to individual clients dropped 23% from 83,444 in 2007 to 64,497 in 2008. Companies obtained 1,930 mortgages in 2008, a 19% over 2,383 loans in 2007.

In terms of mortgage volume, lending to individuals was down by 25%. In 2008, banks lent individuals mortgages worth CZK113,927 million, compared to CZK142,288 million in 2007.

Companies, on the other hand borrowed 55% more in 2008 - CZK64,222 million worth of mortgages, compared to CZK41,485 in 2007.

Jan Sadil, CEO of leading mortgage bank Hypotecni banka says, "There were many reasons for the fall in the volume of mortgage loans provided in the year 2008, including a record comparative base in the previous period, the macroeconomic development and the financial crisis. The result is quite good in this situation".

Hypotecni banka granted more than 21,000 mortgages in 2008 worth CZK39.6bn, a slight drop from CZK40.4bn a year earlier.

Overall, banks in Czech Republic granted 403,486 mortgages between 2000 and 2008. The mortgage debt grew on a yearly basis by 24% and at the end of 2008 the market amounted to CZK583,520, which is around 16% of Czech GDP.

Mortgage markets experts think that it would be success if banks can provide in 2009 mortgages worth CZK100,000 million.

This is strictly linked to the worsening situation on labour market. In general, the Czech property market isn't over-supplied but prices are fairly static.

The Czech Statistical Office reported on 2nd February that apartment prices in the country increased by just 0.2% in Q4 2008.

In Prague, on the other hand, the average flat price declined by 1.7% (quarter-on-quarter) in Q4 2008. Here, the fall in the number of mortgages granted in 2008 was also the highest - 27%.

All the figures above indicate a slowing property market, which, taking into account the global crisis and the sharp slow down of the Czech economy, will inevitably continue through 2009.

Many experts believe the Czech economy is already in recession, although this hasn't been confirmed yet by official data. In 2008, GDP grew by 5.4% in Q1, 4.5% in Q2 and 4.2% in Q3 and for the whole year it is estimated growth was around 4%, down from 6.5% in 2007.

The slow down is mainly a result of a decline in exports as the vast majority of these (85%) go to the EU, with Germany itself accounting for one third of Czech's exports. Another key factor driving down economic growth is sharply decreasing domestic demand, which, according to estimates, grew only 1.2% in 2008 compared to 5.2% in 2007.

These trends will be even more pronounced this year, as most of Czech's trade partners are already in or are heading for recession. Consumption in Czech is almost certain to slow even further as unemployment - and the fear of unemployment - increases.
The latest forecast from the Czech Ministry of Finance assumes 1.4% economic growth in 2009, a slow pick up in 2010 (2.1% GDP growth) and recovery in 2011 (3.8%).

The figures above, even though indicating a sharp decline in economic growth in Czech, are still far better than forecasts for many other EU countries. The Czech government also has room for some important fiscal measures, such as cutting taxes. And we are likely to see further falls in interest rates.

Our view is that, while Czech will clearly not escape the big economic chill, it is highly likely to be one of the first CEE economies to emerge from it and will return rapidly to steady economic growth, probably as early as 2010/2011. However, much will depend on the timing of a recovery on the revival of its key export markets, most importantly Germany.

One PS investor who secured a 100% LTV Slovakia is Ravi Sawhney who recently invested in Bratislava in Slovakia.

Ravi purchased an apartment in Nove Mesto (new town) in Bratislava. The price was about SK56,000 psm and the property was an apartment on the secondary market.

His mortgage terms make his investment cashflow neutral - the rent covers the loan.

This is his first investment in central and Eastern Europe. He actually looked into buying in Slovakia about two years ago but at the time he ended up buying in London.

This tied up his capital, but he kept a close eye on the markets of Bratislava and other secondary cities such as Trnava.

His reasons for sticking with the Slovak market are that he believes the country and Bratislava in particular offers one of the best risk/reward profiles in Europe for property investment.

He believes the market offers great potential for growth yet a stable economy.

Great finance and rental potentials lessen the risks involved in investing in the market.

Ravi's girlfriend is from the Slovak Republic, so he is familiar with the market having visited the country over a dozen times in the last four years, each time becoming more familiar with the people, economy and areas of the country.

Having settled on the Slovak Republic as his investment location, he decided on his investment strategy.

Ravi's view is that there is value to be had in buying properties on the secondary market and refurbishing them.

The problem he encountered was finding the right property and being able to move quickly on it. He admits it took some time and effort before he eventually found something in Nove Mesto, very close to the transport links and the Old Town.

He completed the property purchase last October 2007 and began applying for a mortgage in November.

He started off by approaching a few brokers and intermediaries but soon found out that some of them were charging unreasonable fees.

One broker was charging him a 3% bank arrangement, fee but he believes you should walk away from anything more than a 0.5% fee, which is typically capped at €500.

In the end he went direct to the bank and avoided the fee all together. This was possible because he had his girlfriend on-site to manage the relationship with the bank manager.

The bank he went with in the end was OTP bank and he arranged a mortgage with 100% LTV, and valued Ravi's unit at 3% below market value, which he says in normal in Slovakia. Total charges, including translations and notary stamps, were around £1,500.

The interest rate is fixed for five years is 4.9%. Slovakia is expected to join the euro next year, there is an argument that rates might fall as a result. But he is bullish on the eurozone over a five year period and values predictability over the five year period more than the any potential small drop in lending rates.

He believes the expected rentals will also cover the repayments.

Would he recommend fellow investors to go down the road he did?

Buying on the secondary market was very complicated and he came across a number of obstacles when dealing with the purchase on his own.

He ended up paying for the seller's estate agent to handle a lot of the paper work but this worked out well for him as he felt they could be trusted.

Naturally it was a huge advantage that his girlfriend is from the Slovak Republic and in a position to negotiate with agents and banks in their native language.

A way around this would be to hire a translator however this adds to the purchase cost.

What advice would Ravi give to people setting out to apply for a mortgage in the Slovak Republic?

Do not pay more than 0.5% of the loan amount to any broker.

Ravi recommends you try going direct to the banks if you have the time but having a Slovak speaker definitely helped a lot in doing this.

Be prepared for things to move slowly.

Having a regular income also seems to be banks' number one concern. "It was the first question they asked when you walk through the door, " said Ravi.

Ravi admits he was applying for the mortgage over the Christmas period which didn't help however he advises not to be afraid to keep applying pressure on the bank manager and if you have a good relationship with the seller's agent, ask them for help also.

Another point to keep in mind is that because the markets are moving so fast, the valuation of your property may be less than the sale price by more than you would expect. In Ravi's case it was just 3%.

This, he explains, is down to the fact that the government body updates average valuations once a year in March.

The whole application process took two months, which was a little excessive as it was over the Christmas period. But Ravi describes the paperwork as 'Simple and straightforward' because the seller's agent did a lot of the work. "Otherwise it would have been a complete headache, especially on a re-sale since all the documents are in Slovak."

So, plan for the fact that you will need to get some translation work done and for this you will need a state recognised translator. Prices can also vary for this so it's a good idea to seek several quotes.

Ravi's final piece of advice is tread carefully and always do your homework!
Judging by the success Ravi had in securing a 100% LTV mortgage at interest rates where his rentals will cover the mortgage, it certainly seems that Ravi has done well in this Slovak Investment.