Hypostat 2015

EU 28 Country Reports
Luxembourg
By Daniele Westig, European Mortgage Federation – European Covered Bond Council
Macroeconomic Overview 1
Luxembourg continued its strong GDP performance in 2014 with an average growth
of 5.6%, thus considerably accelerating from the 4.4% of 2013. This growth was
based on a balanced contribution from domestic demand and net export. The former
may be explained by the boost of private consumption and investment in the
second half of 2014 due to the planned increase by 2 pp of VAT from 2015. The
financial sector, the country’s main growth engine, has completed the transition to
the new regulatory financial standards and the investment fund industry is gaining
momentum, which is also improved by the ECB’s non-conventional monetary
policy measures. Moreover, the government is promoting investment in high quality
infrastructure, however capacity utilisation remains low and the gradually improving
external environment and the Investment Plan for Europe only will mildly improve the
investment figures of 2015. Although remaining markedly one of the lowest figures
in the EU, unemployment is expected to peak in 2015 and then decline as a result of
the increased dynamism of the economy. HICP inflation continued to fall to 0.7% in
2014 and went below 0 in December 2014 for the first time. In spite of the increase
of VAT, inflation is expected to remain low in line with the sustained weakening of oil
prices and a negative output gap. Inflation, however, is expected to bounce back to
more than 2% due to sustained demand and to the boost by the QE of the ECB. The
public finance figures continued to be robust, but they displayed a slight deterioration,
reaching a 0.6% surplus in 2014 from the 0.9% in 2013. The balance is expected to
further weaken mostly due to a change in EU legislation on e-commerce services,
which will result in a drop of VAT revenues to around 1.5% of GDP.
Housing and Mortgage Markets 2
Outstanding mortgage loans in Luxembourg rose by just over 7% year-on-year, which
reflects the improving economic situation and a well-performing housing market.
Gross residential lending increased by more than 9% on a y-o-y basis in 2014
overcoming the slight decrease in 2013 and reaching a new all-time high, with
nearly EUR 6.4 billion.
Mortgage interest rates continued to fall (in line with the general trend) for the
fourth consecutive year, reaching 2.03% p.a. remaining among the lowest in Europe.
As the Luxembourgish market for mortgage loans is dominated by variable
rate loans, borrowers are very sensitive to interest rate changes and therefore
cuts in reference interest rates have large impacts on borrowing volumes, and
ultimately house prices.
With this in mind, it is unsurprising that house prices in Luxembourg continued
to rise for the fifth consecutive year. The year-on-year rise in house prices was
nearly 4.1% which continues to be one of the highest rates of increase in Europe
also in 2014 and represents an increase of the house price level of roughly 25%
compared to 2009. However, this rise in 2014 was slightly less than 2013. This can
be explained by the interaction between an ever increasing demand of housing in
Luxembourg and large residential building activity. On the demand side, over the
last year the price of new dwellings increased by more than 14%, while the price
of second hand apartments increased by ca 4%. On the housing supply side, there
was an increase of almost 70% in building permits in 2014, principally due to a
more than doubling of permits for two or more dwelling residential units, while
single residential units increased by more than 17%. This in part eased out the
upwards trend of house prices in Luxembourg.
Luxembourg
2013
Luxembourg
2014
EU 28
2014
Real GDP growth (%) (1) 4.4 5.6 1.3
Unemployment Rate (LSF),
annual average (%) (1)
5.9 6.0 10.2
HICP inflation (%) (1) 1.7 0.7 0.6
Outstanding Residential Loans
(mn EUR) (2)
23,389 25,038 6,909,057
Outstanding Residential Loans
per capita over 18 (EUR) (2)
54,839 57,208 16,787
Outstanding Residential Loans to
disposable income ratio (%) (2)
144.1 153.0 n/a
Gross residential lending,
annual growth (%) (2)
-5.1 9.2 n/a
Typical interest rate on new residential
loans, annual average (%) (2)
2.1 2.0 3.4*
Owner occupation rate (%) (2) 73.0 n/a n/a
Nominal house price growth (%) (1) 5.2 4.3 2.2
* Please note that this value is the simple average of the typical interest rate of the
EU 28 countries.
Sources:
(1) Eurostat
(2) European Mortgage Federation – Hypostat 2015, Statistical Tables.
1
Sources: http://ec.europa.eu/economy_finance/eu/forecasts/2015_spring/lu_en.pdf ;
http://ec.europa.eu/europe2020/pdf/csr2015/cr2015_luxembourg_en.pdf
2
Sources:
LU STATEC
http://www.statistiques.public.lu/stat/ReportFolders/ReportFolder.aspx?IF_Language=fra&Mai
nTheme=4&FldrName=4&RFPath=37#
Global Property Guide – Luxembourg:
http://www.globalpropertyguide.com/Europe/Luxembourg/Price-History
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