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People spend more than third of income on mortgage, CSSF says
Indebtedness

People spend more than third of income on mortgage, CSSF says

by Yannick LAMBERT 3 min. 09.08.2021
Financial watchdog made a loss of just over €12 million in 2020, annual report shows
Photo credit: Chris Karaba

Household debt continued to rise in Luxembourg as the real estate market becomes riskier due to soaring housing prices, the Grand Duchy's financial watchdog has warned.

Housing prices rose by almost 17% in the last quarter of 2020 compared to the same period the previous year, according to figures from the country's statistics agency, Statec.

"It appears that on average around 39% of the annual disposable income is dedicated to debt repayment", the country's financial watchdog, the CSSF said in its 2020 annual report published on Friday.

This stands out compared to previous years and contrasts with the economic slowdown caused by the pandemic, the CSSF said.

People were taking out mortgages to cover nearly 78% of their property's price in the first semester of 2020 - an increase of more than 4 percentage points in one year, the CSSF said. A third of all new loans taken out during that period reached above 90%, the report noted based on surveys. 

In 2020's first two quarters, banks had granted €3.3 billion in housing credit, representing an increase of 3% compared to the same period the year before.

In 2018 already, the "ratio of households' aggregated debt over annual gross disposable income stood at 178%", the CSSF said.

In 2020 Luxembourg adopted a law to allow the CSSF to cap the value of mortgages as a percentage of the value of the property to prevent people from becoming over-indebted.    

Several studies and reports show that Luxembourg's housing crisis is strongly driven by empty properties and vacant land in a market situation that researchers and pressure groups describe as oligopoly dominated by wealthy owners and property developers.

Last month, the LISER research institute published another study detailing how property owners and developers are deliberately retaining land to manipulate the market, as around 0.1% of the population owns half the land and the state does not own much.

The state does not have an "exhaustive account" of how much property is in its hands, Finance Minister Pierre Gramegna said in response to a parliamentary question in July.

CSSF makes a loss

The CSSF made a loss of just over €12 million in 2020, the annual report also said.

The CSSF makes its money from levying a tax on the companies it supervises and is independent of government revenue.     

The regulator works on a four-year budget cycle, rather than financial planning for just a year at a time, Secretary General Paul Wilwertz said. 

In 2020 it was in the third year of its financial cycle which began in 2018. The watchdog made a profit of just under €15 million in 2018, according to its annual report from that year, and a loss of just over €5 million in 2019. The numbers need to balance themselves out by the end of the four year cycle. 

"It's not a big worry," Wilwertz said. "We're not a commercial business so we don’t want a profit.”

The CSSF made a loss in 2020 particularly because of increased staff costs from hiring more people. The financial watchdog is also continually investing in more advanced technology to make it more effective at fighting financial crime, Wilwertz said.  

(Additional reporting by Kate Oglesby)


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