Property prices are increasing faster than incomes in Luxembourg

The rise in property prices in Luxembourg has far exceeded the growth in household income since 2010, according to a study published this November by the Central Bank of Luxembourg. While the cost of real estate increased by 140% between 2010 and 2022, household income increased from €83,700 in 2010 to €116,000 in 2021, an increase of only 38%, according to the Bank’s survey. central, which monitored household debt, income and assets.

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These figures are further proof that the booming Luxembourg real estate market has become unaffordable for buyers. Yet Central Bank economists have found that more and more of those on the property ladder are paying off their mortgages.

According to the survey, the share of households without a mortgage has increased, as has the ratio of individuals without debt.

Between 2010 and 2021, the share of households with a mortgage fell from around 39% to just over 32%, according to the survey. In 2010, just over 21% of households only had a home loan; this proportion fell to 19.5% in 2021, the last year covered by the survey.

At the same time, average mortgage debt has increased significantly. In 2021, households had an average outstanding amount of 450,000 euros, more than double compared to the previous 11 years, where the average outstanding amount was 190,000 euros. The average outstanding mortgage loan has increased in each of the last four surveys by Central Bank economists, which were carried out in 2010, 2014, 2018 and 2021.

A price increase of 140%

Mortgages make up the bulk of debt accumulated by households in 2021, accounting for more than 90% of all household debt, followed by “non-mortgage debt”, of which 60% is consumer loans for the purchase of a car, for example. These ratios are unchanged compared to 2018. A third of all mortgage debt concerns real estate other than the main residence, the Central Bank noted.

Nearly one in two households (46%) had no debt two years ago, compared to just under 42% in 2010. However, the share of households with personal loans increased from 19.6% to 21.3%. The average debt of an indebted household increased significantly between 2010 and 2021, going from 140,000 euros to almost 300,000 euros.

These figures reflect the surge in property prices in Luxembourg, which increased by 140% between 2010 and 2022 and only started to contract at the end of last year and this year, driven by of rising interest rates. The value of real estate in the Grand Duchy has doubled in four of the last five decades, since the mid-1970s, according to theHabitat Observatory.

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High house prices also mean that overall household wealth has increased. The average net wealth of households – which includes real estate and financial assets, but excludes pensions – amounted to 1,270,000 euros in 2021, a nominal increase of around 41% compared to 2018, when it was of 898,000 euros, and 34% after adjusting for inflation.

“These increases in net wealth mainly reflect the gains made by households that own their main residence, thanks to the increase in property prices. More than two thirds of Luxembourg households own their home,” the authors specify.

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The November 2021 survey questioned more than 2,000 households, a sample representing 100% of all Luxembourg households. Previous surveys excluded employees of European institutions and only represented around 90% of households.

This article originally appeared on Luxembourg Times.
Adaptation : Charles Michel