The floating interest rate for house purchases, with an initial rate fixation of up to one year, averaged 4.9% in the first quarter of 2024, while longer-term fixations dropped sharply, averaging 3.7% in February and March, data from the Luxembourg Central Bank shows. Archive photo: Romain Gamba / Maison Moderne

The floating interest rate for house purchases, with an initial rate fixation of up to one year, averaged 4.9% in the first quarter of 2024, while longer-term fixations dropped sharply, averaging 3.7% in February and March, data from the Luxembourg Central Bank shows. Archive photo: Romain Gamba / Maison Moderne

Variable mortgage rates in Luxembourg, which stay fixed for up to one year, held steady at around 4.9% in the first quarter of 2024, but there was a significant drop in rates for longer initial fixations. Despite this, loan volumes remained 20% lower compared to the Q1 2023.

Initial fixed interest rates up to one year for home purchases experienced a slight decrease to 4.87% in March 2024, compared to 4.93% in February and 4.91% in January, data by the Luxembourg Central Bank (BCL) shows. However, there was a significant drop in longer-term fixed mortgage rates.

Specifically, for initial fixation periods of one to five years, rates in March (3.72%) were 52 basis points lower than 4.24% in January 2024, and for initial fixation periods over 10 years, they were at 3.64%, a decrease of 38 bps compared to 4.02% in December 2023. On average, longer-term fixations were over 1% lower than one-year fixations, suggesting that banks are increasingly factoring in rate cuts of up to 100 bps in the next 12 months. These figures are based on preliminary data collected from 73 banks in Luxembourg.

Loan volume

This favourable shift in longer-term rates likely contributed to the increase in loan volumes, rising from €1.094bn in Q4 2023 to €1.269bn in Q1 2024, but still remaining nearly 20% lower than the €1.588bn in Q1 2023. This trend suggests that while the market continues to face pressure from high rates, there has been a slight uptick in volumes, possibly supported by the sharp decline in longer-term rates. It’s also possible that buyers believe rates are unlikely to decrease significantly in the medium term and are therefore choosing to negotiate at prevailing rates.

Deposits

Deposits continued their upward trajectory, with rates reaching 3.57%, the highest recorded since 2009. As of the end of March 2024, total household deposits amounted to €4.759bn, marking an increase from €4.492bn at the end of February.

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