In a long report on the Luxembourg stability programme, the European Commission points to the runaway property prices, which have a direct impact on the budget and the indebtedness of residents.
Becoming an owner in Luxembourg is not within the reach of all budgets. And even for those who manage to do so, you will have to keep an eye on your budget.
On Monday, the European Commission published its opinion on the Luxembourg stability program for the year 2022.
In this document, it highlights several factors likely to cause imbalances in the country’s economy. Household debt is one of them. “The continued sharp increase in house prices fueled concerns about overvaluation and the high level of household debt“ reads the Commission’s report. This reaches 174% of their disposable income, one of the highest rates in Europe.
The source of these worries is obviously the rise in real estate prices. The “long period of rising prices”fed by the demographythe economic growth of the country and the demand for housing exceeds supply led to “an accumulation of overvaluation of house prices while household debt remains very high”. In the first quarter of 2021, prices had increased by 17%. Hence the satisfaction of the Commission to see rising slow.
Read also – We explain why real estate prices keep rising in Luxembourg
According to the Commission, a fall in prices on the real estate market would endanger borrowers and banks and would force a tightening of loan conditions.
Results, “Household debt has also increased in recent years” and some must “devoting a significant portion of their income to debt repayment”. Situation that could “deteriorate, especially in times of rising interest rates or economic difficulties”. In particular with the specificity of real estate loans granted in Luxembourg: approximately 30% are at variable rates and are therefore exposed to interest rate variations. Fortunately, for now, these variable rates remained stable… To the point of once again becoming more advantageous than fixed rates.
The Commission also notes that the loans “are concentrated in a limited number of national banks”which justifies a “surveillance continue”. Luxembourg fortunately has a solid environment: “financial system risks are mitigated by effective supervisory frameworks and a resilient banking sector with well-capitalized banks”.
However, Luxembourg does not have the luxury of relaxing its vigilance: housing is expensive and therefore not easily accessible, especially for low incomes. This explains why housing remains the main concern of Luxembourgers.
Interest rates, construction prices… Here is the latest episode of our podcast “La Bulle Immo”