High mortgage rates are putting pressure on property prices in Luxembourg while rents continue to rise, creating a challenging property market for both buyers and renters. Data from Immotop.lu and the European Central Bank shows how expensive loans have dampened property purchases, prompting more people to rent and increasing demand. This shift means that prospective property buyers are struggling with high borrowing costs while renters are faced with steadily rising prices and fewer affordable options.
Sales prices
Average asking sales prices in Luxembourg have been declining since mid-2022. After peaking at €9,208 per square meter in July 2022, prices began to decline, reaching €8,373 per square meter in September 2023, before stabilizing slightly at around €8,464 per square meter in May 2024. This downward trend in property prices is accompanied by a significant increase in borrowing costs.
Mortgage interest rates
The cost of borrowing to buy a home in Luxembourg has increased dramatically over the past two years. According to the ECB, mortgage rates have more than tripled, rising from an average of 1.31% in October 2021 to a peak of 4.19% in October 2023. In May 2024, the borrowing rate was still at a high level at 4.2%. This sharp increase in mortgage rates has made home purchases less affordable, leading to lower demand and falling sales prices.
Rental prices
In contrast to the falling purchase prices, rental prices in Luxembourg show a steady upward trend. Average rental prices have increased from €17.64 per square meter in June 2015 to €27.37 per square meter in May 2024. The largest increases have occurred in recent years, particularly due to rising mortgage rates. This suggests that many potential buyers are opting to rent instead, driving up rental demand and prices.
The interplay between rising mortgage rates and home prices suggests a shift in market dynamics: high borrowing costs are deterring potential buyers and pushing them into the rental market. This trend is likely to continue if mortgage rates remain high, keeping purchase prices under pressure and driving rental prices higher.
