Mortgage loans down as housing sales slump

The amount in mortgage loans that banks handed out in August dropped compared with the previous month, Luxembourg’s central bank said on Tuesday, as the country saw a slowdown in property sales.

Banks gave out €286 million worth of variable interest mortgages in August, down from €418 million in July, the central bank said in a statement. Lenders granted €218 million in fixed interest rate mortgage loans, a drop from €340 million a month earlier.

A slump in sales this year has seen transactions involving new apartments drop by more than 17%, existing apartments almost 6% and houses nearly 19% in the second quarter of this year compared to the same period in 2021, a report last week by statistics agency Statec and housing research body Observatoire de l’Habitat showed.

Building companies are concerned people will cancel plans for new homes or renovation works due to heftier price tags as costs continue to rise as a result of Russia’s war on Ukraine and lingering Covid supply chain issues, Economy Minister Franz Fayot and Minister for Small and Medium-Sized Enterprises Lex Delles said in response to a parliamentary question last month.

The price of wood and steel - both essential materials when building a home - has almost doubled, soaring by 93% and 81%, respectively, since the start of the pandemic in January 2020, the ministers said, leaving construction companies worried that homeowners will postpone their projects or even cancel them completely because of “substantial price increases”.

Inflation has accelerated at its fastest pace in decades around the world in recent months, leading central banks to raise interest rates to prevent the economy from overheating. Banks pass on these higher costs of borrowing to their clients in loans such as mortgages.

However, while the number of transactions in the housing market has decreased, prices have not. Although fewer people are taking out a mortgage, national statistics agency Statec said in August, the cost of buying a home in Luxembourg climbed 11.5% in the second quarter this year compared to the same period in 2021.

Many people have stopped looking for a home to buy and some have had to reconsider their budget as a result of mortgage rate rises, property website atHome previously said.

Last week, the government put forward a draft law to levy new taxes on unoccupied properties and vacant land in an attempt to ease the pressure in the country's overheated housing market.

The plans are not intended to lower property prices, Housing Minister Henri Kox has said, adding that the country cannot afford a recession.