Household debt as a proportion of disposable income reached 156% in the third quarter of 2016, according to Luxembourg’s central bank, the BCL.
Luxembourg had the fourth highest rate in the EU, behind Denmark (242%), Netherlands (232%) and Sweden (169%). The top five list was completed by Ireland (149%).
Reporting in its “Revue de Stabilité Financière 2017”, the BCL said 80% of this debt came from mortgages. Indeed, the ESRB 2015 report found that 46% of Luxembourg residents had a mortgage on their home.
Mortgage debt as ratio of disposable income
As a ratio of disposable income, mortgage-related debt reached 120% in the first quarter of 2016, up from 60% from the first quarter of 2000. The growth is closely linked to a sharp increase in property prices in Luxembourg over the same period. Over three quarters of the net debt was based on variable interest rate loans.
The report author warned that given the prolonged period of low interest rates, a sudden spike would leave households vulnerable. The report author nevertheless observed a growing trend for fixed rate mortgages and by the end of 2016 these accounted for 59% of new loans.