After a sharp slowdown in 2023, Luxembourg’s housing and mortgage market showed signs of renewed activity in 2024 and 2025 as interest rates eased, prices adjusted and state support measures were introduced. Banks, developers and the banking federation say activity has stabilised across parts of the market, but expectations for 2026 point to consolidation rather than a return to the rapid growth seen before interest rates rose.
Higher European Central Bank interest rates led to a sharp fall in housing transactions and mortgage lending in 2023 and in the first half of 2024, before easing financial conditions and government incentives helped revive demand last year.
Responses gathered from major retail banks, the Luxembourg Bankers’ Association (ABBL) and the real estate sector show broad agreement on the recent recovery, while highlighting continued pressure in new-build construction.
Recovery after the 2023 slowdown
“The Luxembourg mortgage market experienced a sharp slowdown in 2023 due to rising interest rates, followed by a gradual recovery starting mid-2024 and a significant rebound in 2025,” state-owned lender Spuerkeess said in an email.
“Internal figures confirm that mortgage lending volumes have seen a significant rebound over the past two years, nearly doubling compared to previous lows and gradually closing the gap to levels observed in 2022,” it said.
Raiffeisen described 2023 as the weakest year in many years following the rise in interest rates.
“Since the rise in interest rates from mid-2022, credit demand fell sharply in the second half of the year, reaching its lowest level in many years in 2023,” Luigi Di Franco, head of the agency network at the cooperative bank, said.
The number of applications for new mortgage loans rose by about 60% in 2024 compared with 2023, he said. It is on track to be roughly 70% higher by the end of 2025 if the trend seen during the first ten months of the year continues.
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BGL BNP Paribas also described a recovery in demand as interest rates stabilised. In 2024, it said, demand stabilised and began to recover as rates plateaued, and expectations of future cuts improved buyer confidence.
“The first half of 2025 saw a marked pick-up in applications and new lending, supported by lower lending rates and generous housing-related tax incentives and interest subsidies for owner-occupiers,” a spokesperson said.
Demand improved in 2025, Spuerkeess said, but did not return to earlier highs. “In 2025, the demand for new home loans stabilised as the market was supported by ECB rate cuts and government housing incentives, though overall activity remained below pre-2022 levels,” the bank said.
The Luxembourg Bankers’ Association (ABBL) said the improvement reflects a combination of lower and more stable interest rates, government support measures and price adjustments that have brought some projects back within reach for certain households.
VEFA and construction remain under pressure
Banks and the ABBL broadly agree that the recovery has been uneven across different segments of the housing market.
“This year, we have observed a significant rebound in the market for existing homes and already completed apartments,” the Luxembourg Bankers’ Association said.
Across all responses, off-plan housing (VEFA) was identified as the most fragile part of the market.
“By contrast, the VEFA market remains the segment under the greatest pressure, even if we are beginning to see tentative signs of improvement,” the ABBL said.
“This situation is critical,” it added, warning that prolonged weakness in the off-plan market could shift the housing slowdown into a broader construction-sector problem, with risks including business failures, job losses and a lasting reduction in building capacity.
The weakness of the VEFA market is due to the lack of confidence among prospective buyers, the ABBL believes. “Will the project I invest in actually start? Will it be completed?”, a spokesperson said.
Data show that construction-sector distress has remained elevated. In the first half of the year, 89 construction companies filed for bankruptcy, down 10% compared with the same period in 2024, while 515 jobs were lost as a result, 35% fewer year on year.
However, insolvency figures capture only part of the picture: in 2024, around 700 construction firms were dissolved and removed from the commercial register, the highest number on record, underscoring the sharp slowdown in construction activity since 2022.
The situation remains very difficult
Jean-Paul Scheuren
Vice president, Chambre Immobilière
The real estate sector echoed those concerns. Jean-Paul Scheuren, vice president of real estate lobby group Chambre Immobilière, said activity in off-plan construction remained far below normal levels.
“VEFA activity is still at around 25% of normal levels, and the situation remains very difficult,” Scheuren said, describing the situation as “a structural problem”.
Financing constraints are preventing projects from being launched, he said. “I cannot start my project if I don’t have financing for construction,” he said, pointing to high pre-sale requirements as a major obstacle.
The market could see significant consolidation in the coming years, Scheuren said, with the number of developers potentially shrinking from roughly 200 at present to around 80 to 100.
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Banks were seeking to support the market while maintaining prudence, the ABBL said. “Banks are part of the solution,” it said, adding that lenders “want to lend and will continue to do so while upholding their dual responsibility” to depositors and borrowers.
The association highlighted Prolog Luxembourg, launched in 2024 to help unlock stalled projects. “Since April 2025, Prolog has made six formal offers to developers involving put options on apartments with total sale prices of nearly €21.8 million,” the ABBL said.
Scheuren was more sceptical about its impact. “Prolog has not worked as it was set up,” he said.
Prolog Luxembourg, a bank-backed vehicle launched in 2024 with up to €250 million committed by five founding banks, was designed to help unlock stalled residential construction projects.
But take-up has remained limited. Developers have said the scheme’s pre-sale requirements remain difficult to meet in current market conditions, particularly for projects that struggle to secure early buyer commitments before construction begins.
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Expectations for 2026
Looking ahead, banks described 2026 as a year of stabilisation rather than renewed acceleration.
“For 2026, a more moderate evolution in housing transactions and financing demand is anticipated,” Spuerkeess said, adding that activity was expected to remain “broadly in line with recent elevated levels” but “not to show similar growth rates” to those seen in 2024 and 2025.
Raiffeisen also expects continuity. “For 2026, we expect an evolution similar to that of 2025, barring an unexpected exceptional event,” the bank said.
BGL struck a more cautious tone. “Looking ahead to 2026, the market is expected to remain sluggish at current volumes amid potential interest rate hikes and global uncertainties,” it said.
On mortgage products, banks said borrower behaviour shifted as rates eased. “As rates eased in 2024–2025, interest in variable and hybrid structures gradually returned,” Spuerkeess said, adding that “new housing loans will likely be split more evenly between fixed and variable options.”
Raiffeisen reported a similar pattern. “In 2024 and 2025, the split between fixed and variable rates is around 50/50,” it said, adding that this trend should continue into 2026.
BGL noted differences between households. “Higher-income clients tend to favour such solutions, while more vulnerable households continue to prioritise the predictability and protection of classic fixed-rate loans,” the bank said.
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Constraints remain
Despite the rebound in parts of the market, stakeholders highlighted ongoing constraints.
“With current interest-rate levels, demand that still exceeds supply, and – above all – a gradual restoration of household confidence, we hope that the recovery in demand will continue, particularly for new constructions,” the ABBL said.
BGL also pointed to limits on how far the recovery could extend. “The structural housing shortage, combined with a modest pace of new construction, continues to put upward pressure on prices,” the bank said, adding that a renewed increase in interest rates could again push many households close to their financial limits.
From the developer side, Scheuren said structural constraints remained unresolved. “From the structural point of view, I don’t think that things will change,” he said, referring to the off-plan market.