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Housing Finance Market Overview

In Luxemburg, housing finance is mainly raised from banks but also from (branches of German) Bausparkassen and the “Caisse Nationale d'Assurance Pension” (which lends only to private sector employees who contribute to the pension fund). Between 2000 and 2007, the housing finance market has seen a considerable growth. The mortgage debt to GDP ratio increased from 25 per cent in 2000 to 38.5 per cent in 2007.

The Market from the Perspective of the Demand Side

In Luxemburg, the usual maximal loan-to-value ratio amounts to 80 per cent. The Luxemburg government supports the acquisition/construction of housing with several measures. The savings premium is granted for savings dedicated for housing and if money is regularly deposited into the same savings account over a time of not less than 3 years. It is also possible to deduct savings made on a Bauspar contract. The amount depends on the number of household members. In addition, the government grants either a building premium or an interest subsidy. The amount of both depends on the size of income and the number of children. Most mortgage contracts are at a variable rate, representing over 80 per cent of new lending in 2005.

House Price Development

From 2001 to 2005, house prices have risen fast with an average annual growth rate of over 11 per cent. This impressive growth rate has been reduced to a mere 3 per cent in 2006 and 2007. In 2008, house prices even decreased slightly.

Refinancing Instruments

Mortgage loans are overwhelmingly funded by deposits. The securitisation of mortgages and the issuance of Lettres de Gage (Covered Bonds) play only a marginal role. 

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