The rate at which the outstanding amount of housing loans has grown recorded its lowest point in March 2023. Archive photo: Maison Moderne

The rate at which the outstanding amount of housing loans has grown recorded its lowest point in March 2023. Archive photo: Maison Moderne

Recent Luxembourg data indicates that far fewer fresh mortgages are being originated and that some borrowers are paying back their loans early.

From 2003 to 2022, households in Luxembourg amassed more than €34bn in outstanding mortgages, with an impressive average annual growth rate of 9.5%. However, this growth rate has recently declined and dropped to a low of 2.8% in March 2023, which is the lowest recorded growth rate in the past 20 years.

The housing loan market is directly impacted by the combination of and , placing pressure on households with a floating-rate mortgage.

In April, Charles Pletsch, vice president and head of business unit at Spuerkeess--the largest housing loan creditor in Luxembourg-- on their remaining loan amount if they have savings or other disposable income available, given the prevailing economic circumstances.

Indeed, outstanding housing loans in Luxembourg have been gradually decreasing in recent months, suggesting that households are making higher repayments than the new house loans being granted by banks. As of March, the total outstanding debt in house purchase loans for Luxembourg households was €41.57bn, which is €88m less than the figure reported in December 2022.

Data from the Luxembourg Central Bank indicates that the total loans granted for home purchases in the first two months of 2023 amounted to €897m, which represents a decline of over 30% compared to the same period in the three previous years, namely 2022 (€1.33bn), 2021 (€1.293bn) and 2020 (€1.292bn).

This trend is in line with the results of the European Central Bank’s survey, which indicates that the , at -72%, during Q1 2023.

An interesting point to consider is that over 95% of the total outstanding housing loan has a maturity of more than five years, which means that households with floating mortgage rates and a long-term repayment left .

In February and March 2023, there were renegotiations of housing loan contracts amounting to €90m and €89m, respectively. While this represents only about 0.2% of the total outstanding housing loan, it is the highest level recorded since 2015 when data became available and twice the monthly average of €40m in 2022.

The as of March 2023 averaged over 3.6%.