Jeremy Zabatta: During the pandemic, deposits have increased. But given the current low interest rates, having large deposits can penalise a bank. So is it ultimately a bad thing to have this increase in deposits?
Yves Biewer: I’ve been in the business for 30 years and I’ve never turned down a client who comes in to deposit money. Indeed, with the evolution of historically low interest rates, we began to ask questions that I never thought I’d have to think of one day. Most universal banks, including ours, have seen increased deposits. People have saved a lot because they have spent little.
Now there is a profitability and relational aspect. We are a cooperative bank, so we have a different approach from publicly traded banks which aim for maximum return on investment. We refinance, that is to say, we obtain the funds to finance loans and our investments almost exclusively from our savers.
Indeed, if a bank, like in our case, has a surplus in terms of deposits, it has to deposit them with the [European Central Bank] and that costs money. It is even penalising for the banks. But at any moment, we need to make sure we have enough cash to fund the investments and loans we make. We cannot just look at the profitability aspect. I can’t tell a client that I don’t need their money and then tell them later that I need their money. A bank needs to be profitable, but the customer relationship aspect is more important. I believe this is specific to a cooperative bank. We are not publicly traded, we are independent, we have members and we do not have major shareholders.
Faced with soaring property prices across the country, are you seeing difficulties among your younger clients in obtaining a mortgage?
There are all [types of situations]. We don’t like the increases in real estate prices. And it is even worrying. We do see that young people find it difficult to afford real estate without actually being in a situation where young people can no longer buy. From our point of view, it doesn’t matter who comes into our bank, they must have the ability to repay a mortgage. This is the first criterion to be met. If the young person, with their salary, does not have the capacity to repay a mortgage, we try to ask him to look for real estate within their reach.
Some people come [to the bank after] taking into account future pay rises over the next ten years. But this is a speculative move and we are relatively cautious. Then there are the parents or grandparents who can help by being a co-mortgagor or by guaranteeing the loan over a certain number of years or by participating in the down payment. We can also work on the term of the loan to decrease the monthly charge, especially as interest rates are unlikely to rise in the next five years. The loan is then extended to 30 years, and even 35 years sometimes, to have an acceptable monthly charge. But 35 years is still quite a career. I remember, back at the time, borrowing over 15 years.
Today we hardly see any 15-year loans. The standard is 25-year loans. Young people are finding it more and more difficult to find housing. They have the option of renting, but in this case, they help finance the owners’ buildings. They are then sometimes obliged to go to the other side of the Luxembourg border to buy, even if in the Greater Region the prices have already increased considerably, because there are many people who work in Luxembourg and who can no longer find someplace to live here in the grand duchy.
Can you provide an overview of the standard criteria for obtaining a mortgage?
The most important thing is to keep a minimum disposable income in order to be able to lead a decent life. Housing is extremely important, but after a few years you will want to buy a car or go on vacation. But if the banker handcuffs you, then the problems will start. I would say that for a single person, they must have a minimum disposable income of €1,700 at the end of the month once they have made all of their loan payments. For a couple, there should be €2,400 left at the end of the month. That amount can increase depending on the number of children in the household.
The new rules imposed by the [Luxembourg financial regulator] CSSF must also be taken into account. A first-time buyer has the option of applying for a mortgage equivalent to 100% of the purchase price of the property. But if it is to rent, the client must have 20% equity. But the new CSSF rules do not change much for us, because we have always been a prudent bank and we have already applied these types of rules.