Is it safe to take a new mortgage loan in Greece?

Question

What will happen if the country bankrupts or it exits the euro zone?

I am a Greek resident and the loan will originate from a Greek bank. The property is located in Greece as well.

Answer 1

Please clarify your question. What do you mean by "..loan in Greece"? If you are referring to taking a mortgage loan to purchase residential property in Greece, there are two factors to consider:

1. Source of the loan
2. Property location

If the loan originates from a Greek bank, then odds are likely that the bank will be nationalized by the government if Greece defaults. If the loan is external (i.e. from J.P. Morgan or some foreign bank), then the default will certainly affect any bank that trades/maintains Euros, but banks that are registered outside of Greece won't be nationalized.

So what does nationalizing mean for your loan? You will still be expected to pay it according to the terms of the contract. I'd recommend against an adjustable rate contract since rates will certainly rise in a default situation.

As for property, that's a different story. There have been reports of violence in Greece already, and if the country defaults, imposes austerity measures, etc, odds are there will be more violence that can harm your property. Furthermore, there is a remote possibility that the government can attempt to acquire your private property. Unlikely, but possible. You could sue in this scenario on property rights violations but things will be very messy from that point on.

If Greece doesn't default but just exits the Euro Zone, the situation will be similar. The Drachma will be weak and confidence will be poor, and unrest is a likely outcome.

These are not statements of facts but rather my opinion, because I cannot peek into the future. Nonetheless, I would advise against taking a mortgage for property in Greece at this point in time.

Answer 2

The safest financial decisions that you can make in Greece involve getting your money out of Greece.

That said, it depends. If the economy is going to implode and you'll be out of the job with devalued savings -- you'll be bankrupt anyway. You didn't mention enough about your situation for anyone to really answer the question. In a high-inflation environment, *if*you have the assets to weather the storm, holding debt on real property and durable goods is a good thing.

The key considerations are:

• Do you have assets that will allow you to make it through the crisis?
• Will someone convert your Euro-denominated loan into some Greek currency? (Answer: Nobody knows that answer)
• Is the property desirable?

If you have the means, times of crisis are great opportunities.

Answer 3

While I would be very leery of making any Investments in Greece, and if I lived there might want to strongly consider a larger than average investment in 'international' funds (such as an index fund on the US, UK, or German exchanges) Having debt in Greece might not be such a bad thing... if only it was denominated in local currency.

The big issue is that right now, you'd be taking out a loan on property in greece, that would be denominated in Euros. If worse comes to worse, and Greece is kicked out of the EU and forced to go back to the drachma, then you might be in a situation where the bank says "this loan is in Euros, we want payment in the same" and if the drachma is plummeting vs the Euro, you could find your earning power (presuming you were then paid in drachma) greatly diminished.. And since you'd be selling the house for drachma, you might be way under-water in terms of the value of the house (due to currency exchange) vs what you owed.

Now, if Greece were currently on the drachma, and you were talking about a mortgage in the same, I'd say go for it. Since what tends to happen when a government has way overspent is they just print more money rather than default.. that tends to lead to inflation, and a falling currency value vs other countries. None of which is bad for someone with a debt which would be rapidly shrinking due to the effect of inflation.

but right now, safer to rent.

Answer 4

No it is not safe to take out a new mortgage - loan or anything credit related or any investment - in greece.

Growing political risk, bonds have junk credit rating.

You will be underwater on your mortgage the day you apply for it. And you better believe that the buyers will be dry once you realize that it doesn't make sense to keep paying the mortgage. If you want to have some assets, there are more liquid things you can own, in your case: paper gold.

Just rent.