Lower interest rates: ECB eases pressure

After several consecutive increases, the European Central Bank (ECB) has finally decided to lower interest rates in October, a relief for borrowers and investors. At a time when inflation is falling and the European economy is struggling to return to solid growth, this measure is designed to ease access to credit for both businesses and individuals. But what about the property market in Luxembourg, which is particularly sensitive to the ECB's monetary decisions? With prices stabilising and interest rates falling, is now the right time to invest in property? Find out what this new direction means for your property projects 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 finally lowered their rates. A move that is gathering pace. In Europe, after initial "gestures" in June and September, the Governing Council decided on a further rate cut (-0.25) in mid-October.

The reasons behind the fall in rates

The objective is clear: at a time when inflation is slowing, the aim is to boost growth by allowing economic players to borrow. Some of Europe's giants are struggling. This is true of our neighbours: Germany is on the brink of recession, France is struggling with record debt levels that it is trying to reduce without slowing activity... Generally speaking, in the eurozone, after a first quarter marked by timid growth of 0.3%, the pace slowed in the second, with an increase of just 0.2%. Cumulative growth over the last seven quarters has therefore been just 0.6%. And there is no sign of any improvement on the horizon.

New threats to the economy

After the Covid crisis, the war in Ukraine and its repercussions on energy prices, there are other clouds to worry about: the situation in the Middle East, which could once again have a negative impact on oil prices, the trade war with China, political uncertainties in the USA, etc. This is why, by lowering its rates, the European Central Bank wants to make it easier for businesses and households alike to borrow, and thus to invest for some and consume for others.

What impact will this have on the Luxembourg property market?

As far as the property market in Luxembourg is concerned, which has been badly hit by the pandemic and soaring interest rates, the ECB's policy would allow, if not a return to years of double-digit growth, at least more accessible conditions for would-be buyers. As a reminder, the rates offered by banks in the Grand Duchy are directly dependent on ECB decisions, as they themselves borrow from the ECB. Now, after eight years of virtual standstill, from September 2022 to early 2024, the rates imposed by the ECB on banks have risen ten times in a row!

Interest rates already falling, and prices stagnating

Before the new cuts were passed on, according to data from the Grand Duchy's central bank in August, rates on fixed loans to individuals ranged from 3.75% to 3.88% (depending on the repayment period). However, the total volume of loans was down.

Meanwhile, according to the Observatoire de l'Habitat, prices stabilised in the second quarter after five quarters of sharp falls (corresponding, for example, to a 10% fall in the price of a flat over one year).

→ So we guess your question as an equation:

stable prices + falling interest rates = good time to buy?

Our response at LuxKredit is obviously nuanced. It is clear that the context is more favourable. However, there is no question of rushing in headlong.

Depending on the type of property, its location and, of course, the profile of the prospective buyer, the banks' proposals need to be examined very carefully.

So, more than ever, we're here to advise and support you.

You are looking for tailor-made advice and support from financial professionals, you want to save time... we take care of all the steps for you to carry out your project in the best market conditions. Send us your request with a few clicks and we will take care of the rest!