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ING Podcast
When is the right time to buy a property?
When is the right time to buy a property?
Clémence Meurant, Loan Advisor at ING.
At ING, we empower you to do your thing.
Property prices in Luxembourg have continued their steady growth for years. But for new arrivals to the Grand Duchy, knowing exactly when to buy is a tough question. Today, we're going to chat with Clémence Meurant, a loan advisor at ING, who's going to enlighten us on how to have the very best chance of acquiring a property, whilst answering all the little questions you need to ask yourself before meeting your banker.
- Clémence, good afternoon.
- Good afternoon, Jim.
- How are you doing?
- Good, and yourself?
- Yeah, very good, thank you.
Now, of course, everyone knows property prices are super high in Luxembourg. Is it still worth buying, or should I be renting?
- Well Jim, why pay a high rent to a landlord when you can pay it for yourself?
Very good point. But there's more to it than that, isn't there?
- Yes, of course. It really depends on your personal situation at the moment. For example, are you going to stay here for the long term? Are you coming alone or with your family? Do you have sufficient income? Do you have sufficient savings? Those kinds of things.
If I'm single and I've been living here 20 years, I should have bought 20 years ago, shouldn't I?
- Yes, indeed. Well, overall, there is no bad or good answer to this question. It just depends on your lifelong projects.
How much can I borrow?
Now let's say I want to buy a place now. I want to calculate how much I can borrow. People always told me it was 3.5 times my gross income. Is that still true?
- It's true, Jim, but it's not that easy. You need to take into account two things when you want to calculate your borrowing: first, your debt ratio, and second, your disposable income or your financial margin.
Debt ratio? What's that?
- The debt ratio is basically the percentage of your monthly installments compared to your overall net monthly income.
Ah, so for example, if I'm putting 5,000 euros net into my account, you're very interested in how much my mortgage repayment would be?
- Exactly. In Luxembourg, the debt ratio is 45%.
Can you imagine? That seems very high.
- Yes, compared to other countries. For example, in France, it's 33%. But you can reach this debt ratio very fast. To give you an example, I need to do most of the mortgages on 30 years to stay below this criteria.
How is my disposable income calculated?
And how is my disposable income level calculated?
- The disposable income is basically the amount that is available after you’ve met all your expenses. It is calculated depending on several factors such as if you're single or a couple, if you have children, if you have a car (how many), if you have other loans.
So Jim, as you can see, it's not that easy to calculate your monthly installments and your borrowing capacity. I would really recommend booking an appointment at the bank before signing any reservation contract.
The pandemic has made me put off going to see physical people. Can I do this all online?
How do I initiate a mortgage application online?
- Yes, of course. ING Luxembourg allows you to do a simulation or even to initiate a whole mortgage application online.
Is it faster? Do I get a quicker answer?
- Well, it's not faster, but it will be easier for you and for us. Because when you want to introduce a mortgage application, you can select the down payment, the type of rate, your monthly installments, and also attach some documents such as the payslips, the company, your bank statements. This will allow the bank to analyze the situation before setting up an appointment with you.
Okay, so some of the work is done beforehand. But leaving aside the actual cost of the property, are there any other factors I should take into consideration?
- Yes, of course.
Additional costs
The most important one is the additional costs that you're paying on top of the property price. Additional costs are about the notary fees, which represent 1% of the property price. Those are the act of purchase and the mortgage deed. And you have the registration fees of 7% on top. So there's a 7% additional cost on top of the cost of the property.
Government aid
How about the other side of the coin? Do I get any aid from the government?
- There are various state aids which are available depending on your financial situation and your family situation. You can take a look on the services.
Now what about insurance? Is that an essential prerequisite for me getting a mortgage?
- Yes, of course. This is very important. You have two different insurances to take into account: the life insurance, which protects you in case of death and invalidity, and also the house insurance, which protects you against fire, theft, water damages.
Now, it's all very well talking about mortgages - you still have to find your perfect house. What sort of things do people take into consideration when they're searching?
Things to consider
- You have three main things, Jim, to take into consideration. First, the location: do you want to live in the countryside or in the city?
Also, the facilities: do you have public transport nearby, supermarkets, those kinds of things?
And the type of property also matters - if you want to have an off-plan project or an already built one.
Now, we talked digital earlier on. Are there any specific websites you suggest people look at?
- Yes, of course. You have three main sites in Luxembourg: Vortimo, AtHome, and Immotop, on which you can set up alerts.
And is that what people generally do? They put in, say, “I can afford up to 1 million euros, send me anything you’ve got”?
- Yes, they do it like this. I would also recommend contacting real estate agencies in the commune where you want to buy, to give them your expectations. Like this, they would contact you when they have a property that meets your criteria - even before putting it on the market.
I know Luxembourg is quite a small place. I even heard one of my work colleagues talking to me the other day that they were selling their place.
- Yes, it’s important to talk about your project to your family, your friends, your colleagues - indeed, because word of mouth is very important and can work.
Now, psychology here - ultimately, this is big money. This is like a million euros or more. In your experience, what do people really think about when they’re coming to make a decision?
Checklist
- Well, I think you have to keep in mind your priorities and also the concessions you’re willing to make when you want to buy here in Luxembourg. To do so, I would recommend making a checklist about what is very, very important for you, and the things that are more negotiable.
I would also recommend taking a quick tour of the area before visiting a property, and to check also the commune website. When you do the visit, you should also check the general conditions of the property, such as the exposure, the electricity and heating system, the bathroom and the kitchen - if it needs to be renovated.
But don’t worry, we will help you once you introduce a mortgage application and also analyze the property criteria.
You must have seen some crazy photographs of places over your time doing this job, I imagine?
- Yes.
Now, are there any other state aids available specifically to help you with the purchase?
- Yes, of course, Jim. And thank God, because of the high prices here. You have three types of aids I would like to mention here, which apply at the time of purchase, ongoing support, and depending on the type of property you buy.
Tax credits
At the time of purchase, you get a tax credit of 20,000 euros per individual purchaser to help you pay the registration fees of 7% I was mentioning before.
So if I’m a couple, I would get 40K?
- Yes, exactly. But unfortunately, for children, it’s not counted.
And of course, if I’m going to buy a house for a million, 7% is 70K anyway - so it wouldn’t cover that, would it?
- Indeed. But if you buy an off-plan project, the 7% registration fees would only apply on the land price. So sometimes the 20,000 or the 40,000 could cover them all.
Ongoing support
What about ongoing support? Will the government help me there?
- The ongoing support, yes, of course. You can have two different things: interest subsidies and interest reliefs. Interest relief amounts to 2,000 euros per person in your household for the first six years.
Two thousand euros per annum, is that?
- Exactly. And for the first five years after you’ve done the mortgage.
Also sounds quite good. Now, you did talk about super reduced TVA. Does that apply to everything?
Super reduced VAT
- No, this super reduced VAT applies only for off-plan projects or new constructions, with an amount of 50,000 euros maximum.
And I know that from time to time, local communes can give some support too, can’t they?
- Indeed. Some municipalities offer acquisition premiums and construction premiums, even subsidies as well.
Sustainability
Now, sustainability is a hot topic. The whole world is talking about sustainability - rightly so. Is that being encouraged in this market?
- Of course. Luxembourg tries to encourage this and to fund some projects also with banks. Have you heard about Klimapakt or KlimaPrêt, Jim?
No, never have.
- Okay. So KlimaPrêt aims to promote the sustainable renovation of housing over 10 years old through pre-financing of renovation works. There are two loan options: the zero-interest climate loan and the low-interest climate loan. The low-interest climate loan can be obtained from a bank of your choice in Luxembourg, with an amount of 100,000 euros per home over a period of 15 years.
And this is for housing that’s more than 10 years old?
- Exactly.
Okay. What about Prime House? I’ve heard of that one.
- Yes. Prime House aims to support sustainable energy efficiency renovation in existing residential buildings that are more than 10 years old.
And that’s available starting 1st January 2022, isn’t it?
- Yes, exactly. You need to submit invoices to get this help that are issued between January 2022 and December 2025.
And any website to find out more information on that one?
- Yes, you can go on myguichet.lu to find more information about it.
And finally, this famous super reduced rate of 3% on my TVA - any extra information about that when I do a renovation?
- Yes, this is very important. You can ask for super reduced VAT of 3% when you renovate your principal residence. Normally, it’s 17%, but here you can get it at 3%. So… a big discount.
Wow. So Clémence, I asked you at the start whether now is a good time to buy. What do you say?
- Jim, as you asked me, yes - at the very start: do your thing and take the plunge.
- Clémence, loan advisor at ING - thank you very much.
- You’re welcome.
For more information, go to ing.lu/immo.
Changing rates: how to find the right balance?
Changing Rates: How to Find the Right Balance
Philippe Ledent, Expert Economist at ING Belgium-Luxembourg
Narrator: We all know that interest rates are a key factor for all of us. Many bank financial products, both deposits and loans, are also seeing their rates rise.
But what is the central bank’s impact on rate developments? And why are rates rising, even when common sense suggests that now is not the right time?
Today, we talk with Philippe Ledent, senior economist at ING. Hello Philippe!
Philippe: Hello, hello everyone!
Philippe: Let’s start with two basic principles.
First, in an economy, in financial markets, all interest rates are linked. It’s easy to understand: you can’t borrow money for a certain duration with a certain risk, and invest it for the same duration with the same risk, while making money. That is not possible.
That means that all interest rates are still interconnected.
Jim: So it's both the rates I pay on a loan and the rates I get on deposits?
Philippe: Exactly. Second, the banking sector is merely a financial intermediary.
This means that bank product rates are also linked to each other, and to financial-market rates.
Philippe: There are several reasons why interest rates move in financial markets. Fundamentally, it is a matter of supply and demand for capital.
But there is another key factor: the influence of central banks.
Financial markets want to finance the economy—that is their raison d’être. But for that, they need fresh liquidity, provided by the central bank.
And that money is not free: the central bank lends it at a certain interest rate.
This rate strongly influences all other rates in the financial market and in the banking sector.
Jim: Do all market rates respond the same to central bank rates?
Philippe: No. Two things come into play:
- The level of risk, which can create large differences between rate types.
- The duration.
When the central bank lends to the economy, it does so through short-term operations.
So short-term rates (3 months, 6 months, 1 year) react immediately to any change in the policy rate.
For long-term rates (10, 15, 20 years), it is more complex.
Imagine that I borrow for 10 years. The rate will be influenced by the current short-term rate (defined by the central bank), but also by market expectations about the future evolution of these rates.
In other words, markets try to “read the mind” of the central banker.
By looking at long-term rates, one can understand what the market thinks the central bank will do in the future.
This is crucial for companies that invest in the long term, or for mortgages, which are also long-term loans.
Jim: There's a lot of talk about rising prices in the economy. What is the impact on interest rates?
Philippe: That's exactly the point.
We're currently experiencing high inflation—that's a broad-based increase in consumer prices—of over 8% in some regions, in Europe, in the United States, around the world.
The central bank has two responsibilities:
1. Providing new money to the economy.
2. Maintain stable inflation over the medium term.
The current level of inflation is far too high. So the central bank has to act, and that means raising the rate at which it lends money.
But this has a direct consequence: for people with loans, repayments become higher.
For example, repayments by borrowers can rise. And that’s precisely what this policy is about.
By increasing the rate at which the central bank lends money to financial markets, it puts upward pressure on all interest rates.
This means that what I pay for a loan or mortgage, or what I receive on my deposit, will also increase.
This shift influences consumer and business behavior, which helps to slow inflation.
Jim: So the reason the banks are raising rates is that they're expecting more increases later this year?
Philippe: Exactly. It's all related to financial markets.
Markets anticipate higher rates in the coming quarters.
And as they anticipate, there is already an increase in long-term yields, which affects all long-term interest rates in the economy, including banking products.
Jim: But if rates are supposed to cool the economy, isn’t there a risk of cooling it too much and causing a recession?
Philippe: That's an excellent point. This shows that managing monetary policy is not easy.
Raising rates is aimed at slowing consumer credit, slowing investment, encouraging people to save more and consume less.
These are the channels through which a higher rate slows aggregate demand.
Why? Because inflation reflects an imbalance between too much demand and too little supply.
The central bank wants to slow that demand.
And conversely, when it wants to support the economy, it lowers rates to stimulate demand.
So by adjusting rates, it seeks to influence aggregate demand—either to slow it down or to stimulate it.
Philippe:But if we go too far, there is a real risk: we are happy because inflation is falling, but demand is becoming too low, and this can cause a recession.
This has happened in the past.
We must therefore find the right balance.
We cannot increase rates indefinitely, because at some point it becomes dangerous for the economy.
Jim: It seems counterintuitive to raise rates when the economy is not operating at full capacity...
Philippe: Yes, especially in the euro area, where we are seeing an economic slowdown.
But it's a bit of a choice of the lesser evil.
On the one hand, you might ask why we're doing this now.
But on the other hand, we have to remember that inflation is very high, and it's also bad for the economy and bad for people.
Some might say, “If my income is indexed to inflation, I don’t care. Prices are up by 8%, but so are my wages.”
But not everyone.
Most people in the eurozone do not have indexed incomes.
So, for many people and businesses, such high inflation - well above the usual 2% - is very problematic.
The central bank needs to think about overall well-being, not just those who are suffering from rising rates.
Taking into account all the negative consequences of too high inflation, it is important to act on interest rates, even if the economy is not doing as well as we would like.
The goal is to fight inflation that hurts people and businesses.
Jim: Thank you, Philippe, for that very comprehensive explanation.
We're coming to the end of our survey: we're seeing big movements in financial product rates, because market conditions are changing.
And they're changing because we're anticipating increases in central bank rates—increases that have already started everywhere.
Those increases are driven by the desire to regain control over what is, frankly, a record-breaking inflation.
Is that a good summary, Philippe?
Philippe: Perfect!
Jim: It was Philippe Ledent, senior economist at ING. Thank you very much!
Feel free to contact your ING team if you have any questions or to discuss your personal situation. Find all useful contacts on ing.lu/service.