How do interest rates change real estate dreams?

Rudolphe ABENRudolphe ABEN - NEXTIMMO.LU

Rudolphe ABEN

How do interest rates change real estate dreams?

This year, interest rates on home loans in Luxembourg have skyrocketed. The effects on plans to buy a house or an apartment have been devastating.

Since the beginning of the year, the hopes of many potential clients have been dashed due to the dramatic increase in interest rates on real estate loans.

Potential buyers are not lining up at the door because of the high cost of loans. This is true for all buyers, but especially for those making their first major purchase.

On the other hand, first-time buyers will have to scale back their ambitions if they have no choice but to make the investment immediately or continue renting. As a result, you may have to settle for a home that is a little smaller than you would like or located in a less ideal neighborhood.

Significantly reduced costs

The power dynamics have changed. With demand so low, it's inevitable that sellers will reduce their asking prices. Because they are based on the prices listed in the ads, official statistics claim that prices have continued to rise, which gives a false picture of the market. However, in reality, it is usually a decrease in the negotiated price that occurs. Some sellers are in a hurry to find a buyer immediately. And the sellers' consciousness is cluttered with mental images of a market where real estate prices have steadily and inexorably increased.

Some sellers, like cash-strapped buyers, will have to accept the reality that they are no longer aiming so high. Real estate agents are working to educate them. One solution is to take out a loan now knowing that it will likely be renegotiated in two or three years.

There are so many unknowns that it is difficult to predict how long this situation will last. However, when interest rates stabilize, the situation can be reversed. The current interest rates are typical; it's the ones before that were unusual. While buying is the best long-term option, leasing is an option until things settle down. At the current exchange rate, the monthly payment for a rental unit that would normally cost about €1,800 would be €2,700. So we can expect rates to drop, making loans a little cheaper, in the years to come.