Experts in the Luxembourgish real estate business agree that fixed rates have been the norm in recent years. This is good news for affected borrowers because it means that they did not have to endure the successive interest rate hikes in recent months.
However, for those who took the risk of borrowing at variable rates, the situation has changed dramatically. Some have seen their rates rise from 1% to 5% in less than a year.
This obviously has an impact on their finances, but also on the banks’ activities. While demand for real estate loans is in free fall, requests for refinancing have gone through the roof.
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“The days when money was cheap are over,” economists and bankers declared as the European Central Bank (ECB) raised interest rates. And it’s not over yet.
Our colleagues from RTL 5 Minutes spoke with several experts, and based on the information they gathered, further increases are expected in 2023.
“Rates will rise by another 50 basis points,” says Vincent Quillé, co-founder and director of Nexfin. He does not expect a drop before the beginning of 2025, “but that’s just a theory,” he insists.
So, do people simply have to suffer these increases? The short answer is no. Although it is a little late to think about refinancing, Quillé says “there are still solutions to lighten the monthly burden.”
As a first step, he advises those concerned to contact their bank and see what options are available. Because it is important to know that the fixed rate is currently lower than the variable rate.
At the moment, it is negotiated “between 3.8 and 4.2%" whereas the variable rate can exceed 5%. Quillé explains that by switching part or all of their loan to a fixed rate, customers can “gain up to 100 points.”
In practise, this can mean a 10% reduction in monthly payments to the bank. Be careful, however, to structure the loan in such a way that you can renegotiate the rate at a later date if the rate falls.
And that’s not all. Borrowers can also negotiate the duration of their loan to reduce their monthly payments. “The rate will be lower if you go from 20 to 25 years, for example,” he says.
A repurchase by another financial institution is also possible but “this is less common because the native banks make good efforts,” according to Quillé.
These are all options that can help relieve the burden on household finances caused by the rise in interest rates. The good news is that there is always the option of consulting a broker if you don’t want to go through these procedures without assistance.
Borrowers “still don’t have the reflex to come to us,” Yann Gadéa, head of consultants at atHome Finance, told our colleagues from RTL 5 Minutes. “They tend to suffer the increases,” he added in an interview earlier this month.
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Yet it is a service that costs borrowers nothing. “I don’t like to say it’s free because it’s the banks that pay,” Quillé notes.
But in practice, you can use a broker to evaluate your options. This is a good idea for those who do not necessarily have a comprehensive understanding of what is available in Luxembourg’s financial centre.
