Falling interest rates: the ECB eases the pressure — an opportunity for property in Luxembourg?
After several consecutive increases, the European Central Bank (ECB) finally decided in October to cut its interest rates, a relief for borrowers and investors. With inflation easing and the European economy struggling to return to solid growth, the move is intended to make credit easier to obtain, for businesses and private individuals alike. But what does it mean for the property market in Luxembourg, which is particularly sensitive to the ECB’s monetary decisions? With prices stabilised and rates falling, is now the right time to invest in property? Find out what this new direction means for your property plans in the Grand Duchy.
The end of a taboo. Both the European Central Bank (ECB) on the old continent and the US Federal Reserve (Fed) have at last revised their rates downwards. A movement that is gathering pace. In Europe, after initial “gestures” in June and then September, the Governing Council decided on a further cut in its rates (-0.25) in mid-October.
The reasons behind the rate cut
The objective is clear: with inflation slowing, the aim is to revive growth by allowing economic players to borrow. Because some European heavyweights are stalling. That is the case among our neighbours: Germany is on the brink of recession, France is grappling with record debt it is trying to reduce without stifling activity… Generally speaking, in the euro area, after a first quarter marked by a timid 0.3% rise, the second saw the pace slacken, with growth of just 0.2%. Cumulative growth over the last seven quarters has thus reached only 0.6%. And on the horizon, no let-up appears to be in sight.
New threats to the economy
After the Covid crisis and the war in Ukraine with its impact on energy prices, other clouds are causing concern: the situation in the Middle East, which could again weigh on oil prices, the trade war with China, political uncertainty in the US… That is why, by cutting its rates, the European Central Bank wants to let businesses and households borrow more easily, and therefore invest in the one case and spend in the other.
What impact for the property market in Luxembourg?
As for the Luxembourg property market, heavily affected after the pandemic and the surge in rates, this ECB policy would bring, if not a return to years of double-digit growth, then at least more accessible conditions for prospective buyers. As a reminder, the rates offered by banks in the Grand Duchy depend directly on ECB decisions, since the banks themselves borrow from the ECB. And after eight years of near status quo, from September 2022 to early 2024 the rates the ECB charges banks had undergone ten consecutive increases!
Rates already falling, and prices stagnating
Before the newly decided cuts were passed on, according to data from the Central Bank of the Grand Duchy, in August the rates recorded on fixed-rate loans granted to private individuals ranged from 3.75% to 3.88% (depending on the repayment period). The total volume of lending, on the other hand, was down.
Meanwhile, according to the Observatoire de l’habitat, prices stabilised in the second quarter after five quarters of sharp falls (equivalent, for instance, to -10% for a flat over one year…
→ So we can guess your question, in the form of an equation:
stable prices + falling rates = a good time to buy?
Our answer, at LuxKredit, is of course a nuanced one. The context is clearly more favourable. That said, there is no question of rushing in headlong.
Depending on the nature of the properties, their location and, of course, the profiles of prospective buyers, the banks’ proposals need to be examined closely.
More than ever, then, we are here to advise and support you.
