Like Antony I too turned down the first 'offer' from Noble Bank. However I have accepted the second offer. Reasons: Mainly to improve cash flow. It is virtually impossible to gauge what the economy/fx rates will be in two years but decided on reducing CHF mortgage payments and adopting a 'wait and see' approach. At least my monthly payments will be vastly reduced and the market prices could increase inthe next two years.....who knows. An expensive option but suits my personal circumstances at the moment and I get to place financial issues re. the apartment on the 'back burner'. Also assisted by the fact that switching from REDNET with whom my apartment lay empty for nine months, I now have a tenant.

I was made an offer to sell but what with legal fees/PS fees/taxes/CHF mortgage I would still be selling at a loss although on paper the offer price was 20 percent more than the purchase price.

WIBOR 3month rate is 4.63% today , so at 9.99% Metro are taking a 5% margin .
Yes, this is extortionate , but on the other hand many Polish Banks have withdrawn their offer altogether to foreign investors & those that are still lending have reduced the LTV's available & increased the pricing ( although not to the level of 5%...margins of 1.85% - 2.35% are the norm at the minute )
Applying a 5% margin in PLN is effectively saying that they are closed for business with regard to investment mortgages , compared to the local market where owner occupiers are being charged margins of between 1% - 1.5%

With regard to borrowing in CHF ,to the best of my knowkedge the majority of Polish banks have withdrawn their FX offer ( CHF included) & are now lending solely in PLN. ( Those that still have an offer in CHF have margins that reflect both the risk & liquidity cost of borrowing in FX at the minute )

Hi cc

Even with the fall in the CHF Libor rate over the last year my polish properties are still cashflow negative. With Libor at 0.40%, margin of around 2.95% plus 1% until mortgage registered the effective interest rate is still 4.35% (down from high 6's) after service charges and management fees most investors I know are still in a negative cashflow situation.

These offers give you 2 years breathing space at which time you can re-assess the Polish property market, exchange rates and the global recession, no one can accurately forecast what the situation will be at that time, but I feel confident it will be considerably better than now on all counts.

I have spent alot of time analysing these offers and getting to know the small print and what can be negotiated. It is not practical to try and explain here, I am happy to assist anyone who wants to contact me about it.

Antony Tilney

Hi Antony ,

I'm sure you know the details of your portfolio better than anyone else , but my reasoning behind your investment being cashflow positive is as follows :

Take purely for example a CHF 100k loan @ 4.35% ( & btw a margin of 2.95% is excessive if you drew down this facility more than 6 months ago) .
This equates to monthly interest only repayments of CHF 362 ( PLN 1,073 @ todays rate of 2.96 )
Assuming CHF 100k was @ 80% gearing , then the property value is c. CHF 125k
CHF 125k = PLN 312,500 ( taking the FX rate @ 2.50 ... it's at 2.96 today but was sub 2 less than 6 months ago.)
PLN 312,500 with the average price per m2 @ 7,500( Warsaw ) = a 41.6m2 unit .
41.6m2 @ average PLN 40m2 rent = PLN 1,664 per month.
Allow 20% for fees/utilities = PLN 1,331 per month which is CHF 449 at todays exchange rate of 2.96.
Therefore , net rent of CHF 449 vs repayments of CHF 362. Cashflow positive ( with the potential to be even better if you get your mortgage registered & reduce the interest rate by another 1% ) .
I've made a couple of assumptions around the location of the property , initial gearing & the repayment type ... but all things considered I'd say your property has the ability to self finance .

Unless you guys are on fixed CHF mortgages I just cannot see how the rate cuts by the Swiss National Bank haven’t helped?

Granted anyone on a CHF mortgage has seen a huge increase in the outstanding mortgage sum, but repayments should have fallen a lot if you are on a variable.

My monthly payments have come down from 4.15% (1700 PLN ) to 1.6% (730PLN) with Millennium Bank. The unit is now cash flow positive, even taking all PS/Rednet/Management fees into account.

I just can’t understand how the bank’s offer to fix the mortgage is the best way forward. The fees to do so seem way too high to justify the move???

Hi cc

I was also surprised that my polish properties were yielding so low and cashflow negative !! but unfortunately that is the reality of the situation, I will give you the actual figures for one of my units in Warsaw that closely fits your example as I think other people may find some real figures useful (units outside of warsaw in some secondary towns perform even worse and units bought in 2007 also perform badly because of the higher price paid).

The difference is mostly to do with costs, the main one being the service charges. I have had this mortgage for more than 18 months and the margins at that time for self employed foreigners through Noble bank were 2.95%, I know some other banks were advertising lower margins but they would either not accept self employed or charged big upfront fees.

I am not unhappy in general with my polish portfolio as growth was very good early on and I believe will be again over the medium term, but it is the negative cashflow that hurts right now and that is the point I was making in the previous post about reducing that cost now to survive.

The following figures are based on my Warsaw Majolikova 2 bed 59sqm unit bought in 2005/2006 completed end of 2007. Paid 257K total incl parking, kitchen etc, mortgage at 83% is 213K PLN was converted at rate 2.16 to CHF giving 99K CHF loan.

Loan
Interest rate is currently 4.47% (0.52 libor + 2.95% margin + 1% until registered) 30 year repayment term giving total monthly payment of 515 CHF (370 interest 145 repayment) at current rate of 2.96 equals 1524 PLN (1095 interest only).

Rent
total rent is 1700 PLN (1600 + 100 towards utilities)

monthly cashflow PLN
1700 rent
costs
-1524 mortgage payment
-504 service charges
-195 property management (10% plus vat on base rent - very competitive !)
-25 building insurance (apportioned monthly)
-34 accountancy (apportioned monthly per property)
-2282 - total costs

-582 monthly negative cashflow

(-153 monthly negative cashflow based on interest only)

mortgage cost based on 1% CHF rate is around 245 PLN interest only
+697 monthly cashflow !!! (helps to offset some less well performing units)

HTH Antony

Thanks cc,

This is very useful.

STC

Antony,

As you have kindly offered I would interested in getting some advice on this. This is the first one for me. I need to decide now based on the offer whether to pay up or walk away and loose lots of money.

I have searched for you on google and could not spot you.

STC

Hi STC

just type my name in spelt correctly and you cannot fail to get me ! (there is no 'h' in Antony)

Antony Tilney

Thanks Antony,

I have your mail address. I will drop you a note.

Thanks

Susan