Luxembourg residents have capitalised on the favourable deposit rates, accumulating a staggering €3.77bn in deposits with a maturity of up to one year, as of May 2023, a nearly 20-fold increase compared to historical averages. In contrast, the demand for housing loans has been diminishing due to the upward trend in mortgage rates.
According to a by Luxembourg’s central bank on Wednesday 19 July 2023, based on preliminary data from 49 reporting banks in the country, the variable interest rate on mortgage loans for households with an initial period of up to one year rose by 27 basis points month-on-month, reaching 4.38% in May 2023.
The volume of newly granted loans in this category experienced positive growth, expanding by €53m to reach €216m in May, compared to €163m in April.
However, on a yearly basis, the interest rate surged by 302 basis points while the volume of newly granted loans contracted by €91m.
Furthermore, mortgage rates for longer maturities, with different initial rate fixation periods, also witnessed an increase in tandem.
The loan volumes for an initial rate fixation period over 10 years (€227m) matched those with an initial period of up to one year (€221m).
This can be attributed to the appealing interest rate of 3.9% for the initial rate fixation period over 10 years in May 2023, which has experienced a decline of 14 basis points since March.
In contrast, in the same period, variable rates with an initial period of up to one year increased by 77 basis points.
Concurrently, the interest rate on fixed-term deposits for households with an initial maturity of one year or less reached 2.63% in May 2023, marking the highest rate in a decade.
This likely enticed residents to transfer their savings from highly liquid current accounts to fixed deposit accounts.
The substantial surge in deposits with an initial maturity of up to one year to €3.77bn reflects this trend, while the demand for new housing loans remain subdues.
On a yearly basis, total housing loans in May 2023 experienced a significant decline of 36% compared to May of the previous year.