January 2025 saw the volume of new housing loans fall by more than 38%, with €446m in loans issued compared to €720m in December 2024. The data, published by the Luxembourg Central Bank (BCL) and provided by 73 reporting banks, suggests that the housing market in the grand duchy remains subdued. Many potential homebuyers are still not ready to commit to big purchases, likely waiting for mortgage rates to bottom out.

Since the start of the year, the European Central Bank has reduced key banking rates by 50 basis points, and by 150 bps since June 2024. In comparison, the average interest rate on housing loans with an initial one-year fixation fell by 114 bps to 3.88% in January 2025, down from 5.02% in December 2023.

Notably, longer-term fixed rates saw a slight increase over the month. The average rate for loans with over 10 years’ initial fixation was 3.39% in January 2025, up from 3.25% the previous month. This suggests banks may be less confident in further rate cuts or are hesitant to fully pass on the rate reductions to consumers.

Outstanding mortgages

The total value of outstanding housing loans to Luxembourg households decreased marginally, from €41.470bn in December 2024 to €41.221bn in Jan 2025, indicating a slight degrowth in household borrowing.

On the other hand, household savings seemed to grow. Luxembourg households deposited more than €5bn in both December 2024 and January 2025, with an initial maturity up to one year, benefiting from the high rates of 2.49% and 2.38%, respectively.