High mortgage rates are putting pressure on house sale prices in Luxembourg, while rental rates continue to rise, creating a challenging housing market for both buyers and renters. Data from Immotop.lu and the European Central Bank highlights how expensive borrowing has dampened home purchases, pushing more people towards renting and driving up demand. This shift leaves potential homebuyers struggling with high borrowing costs, while renters face steadily increasing prices and fewer affordable options.
Sale prices
The average asking sale prices in Luxembourg have seen a decline since mid-2022. After peaking at €9,208 per square metre in July 2022, prices began to decrease, reaching €8,373 per square metre by September 2023 and stabilising slightly around €8,464 per square metre in May 2024. This downward trend in property prices coincides with a significant rise in the cost of borrowing.
Mortgage rates
The cost of borrowing for home purchases in Luxembourg has increased dramatically over the past two years. According to the ECB, mortgage rates have more than trebled, rising from an average of 1.31% in October 2021 to a peak of 4.19% in October 2023. As of May 2024, the borrowing rate remained high at 4.2%. This sharp increase in mortgage rates has made home ownership less affordable, leading to reduced demand and falling sale prices.
Rental prices
In contrast to the declining sale prices, rental prices in Luxembourg have shown a consistent upward trend. Average rental prices have risen from €17.64 per square metre in June 2015 to €27.37 per square metre by May 2024. The most significant increases have occurred in recent years, particularly as mortgage rates have climbed. This suggests that many prospective buyers are opting to rent instead, driving up rental demand and prices.
The interplay between rising mortgage rates and property prices indicates a shift in market dynamics, with high borrowing costs deterring potential buyers and pushing them into the rental market. This trend is likely to continue if mortgage rates remain elevated, keeping sale prices under pressure while rental prices climb.