Luxembourg's Mortgage Market Rebounds Amid Falling Interest Rates and Policy Support

Luxembourg, August 2025 — Luxembourg’s residential property market is showing renewed momentum, buoyed by declining mortgage interest rates and a sharp increase in housing loan activity. After several challenging years, the recovery signals a more dynamic outlook for the country’s real estate sector in the second half of 2025.

Interest Rates Continue to Ease

The European Central Bank (ECB) maintained its main refinancing rate at 2.15% in July 2025, alongside the deposit facility at 2.00% and the marginal lending facility at 2.40%. Against this backdrop, mortgage rates in Luxembourg have continued to decline.

By June 2025, interest rates on new housing loans had fallen significantly compared to a year earlier:

• Floating rate and/or IRF up to 1 year: 3.82%, down from 4.82%
• IRF greater than 1 year and up to 5 years: 3.20%, down from 3.87%
• IRF greater than 5 years and up to 10 years: 3.55%, down from 3.83%
• IRF longer than 10 years: 3.43%, down from 3.57%

The average rate on outstanding housing loans also decreased to 2.63% in June 2025, compared with 2.9% a year earlier. Despite this easing, most loans in Luxembourg remain variable, leaving borrowers sensitive to future rate movements.

New Loan Activity Surges

Lower rates have spurred strong demand for new housing loans. In the first quarter of 2025, new residential real estate loans surged by 41.1% year-on-year to €1.79 billion. The number of loans issued rose 34.3% to 3,996 transactions during the same period.

This builds on momentum from 2024, when the value of new loans increased by 11.3% to €6.18 billion, with the number of transactions rising 17.7% to nearly 15,000. Loans for apartment buildings were especially robust, climbing 42.6% in value, while loans for single-family homes rose 17.2%.

Outstanding Mortgage Volumes Expand

Total housing loans outstanding reached €42.3 billion in June 2025, a 3% increase year-on-year. This marks a notable recovery compared with just 0.8% growth in 2024 and a contraction of 1.2% in 2023. Still, the pace of expansion remains below the long-term average recorded between 2001 and 2022. Mortgage debt stood at 48.2% of GDP in 2024.

Property Prices and Rental Trends

The housing market itself is showing signs of recovery. The average selling price of apartments rose 3.7% year-on-year in Q1 2025. While prices of existing apartments slipped slightly by 0.4%, new apartment prices jumped 10.9% over the same period. Sales transactions for apartments also increased sharply, up 25.4% year-on-year in Q1.

The rental market is heating up as well. Although rental yields averaged a modest 3.1% in Q2 2025, rents themselves are rising quickly. Apartment rents increased 12.2% in Q1 2025, with advertised monthly rents in Luxembourg City averaging €1,902.

Economic Backdrop and Policy Support

The property rebound comes against a mixed economic backdrop. Luxembourg’s economy grew just 1% in 2024 but contracted by 0.4% in the first quarter of 2025. Forecasts for the year suggest real GDP growth of between 1% and 1.7%. Inflation stood at 2.19% in June 2025, broadly in line with expectations of 2.1% for the year, while unemployment edged up to 5.9%.

To address affordability challenges, the government continues to roll out Housing Pact 2.0, which supports municipalities in developing affordable housing. A draft law introduced in July 2025 aims to simplify procedures and expand grants for housing projects, with significant funding earmarked for 2027–2036.

Read More : ecb.europa.eu/stats/policy_and_exchange_rates/key_ecb_interest_rates/html/index.en.html

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