Economy & Politics

More transparency on mortgage fees

Luxembourg banks are gradually lifting the veil on the costs of mortgage loans, particularly in the case of a variable rate loan.

Luxembourg banks are gradually lifting the veil on the costs of mortgage loans, particularly in the case of a variable rate loan.

(ER with ZJ) – Are certain Luxembourg banks less and less discreet when they discuss the cost of a real estate mortgage with their client? This practice is not very widespread in the country, but things seem to be moving, in particular because more and more customers of the country’s banking institutions come from abroad where transparency is essential.

“It is specific to the Luxembourg market that a bank’s margin is not indicated in mortgage contracts,” said Marc Geib of ING Luxembourg to our colleagues at the Luxemburger Times. Banks nationwide usually disclose the overall cost of a mortgage but not the margin they will take.


Sozialalmanach, Wohnungsbau, Wohnung, Gasperich, Wohnungsmarkt, Mieten, Residenz, Foto: Lex Kleren / Luxemburger Wort

With loans representing, on average, three quarters of the overall price of an acquisition, households in the Grand Duchy find themselves exposed to any fluctuation in the market, according to the gendarme de la Place. Data which only concerns 2019, and which therefore excludes the effects of the pandemic.


“Keeping the details of banking products confidential remains in people’s minds, but this is slowly changing” according to Marc Geib. This lack of transparency is a hindrance for owners. They have no idea what consequences a change in rate could have if they borrow at a variable rate. In this context, comparing conditions between different banks is difficult.

“German banks are much more transparent in this regard, and some even indicate their margins during marketing campaigns. History to demonstrate that their offer is the most attractive, ”recalls Marc Geib. In Luxembourg, banks will indicate in the contract the minimum overall cost of a variable-rate mortgage, in order to protect themselves from a greater drop in rates.


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With the cost of housing rising faster than income, household spending for this one part of their budget continues to increase. All the more so for low-income and rental households. The Ministry of Housing therefore intends to tackle this “effort rate”.


A legal approach according to European legislation by making reference to the “standard European document”. “We provide customers with the European standardized information sheet, which includes the annual percentage rate. It allows consumers to easily compare different credit offers, ”explains Banque Internationale à Luxembourg (BIL) spokesperson Vincent Pelletier.

While rates can fluctuate over the life of the loan, a bank’s margin remains the same. It is therefore this margin that represents the cost for the client and that he must negotiate at the start of a mortgage contract. Banks often adjust the level of margins according to the creditworthiness they think of their client, reports the Luxemburger Times. Job security or the amount of money that the client puts on the table when negotiating the loan can be taken into account.


PURCHASE IN LUXEMBOURG Get a mortgage The elements of the file shutterstock

Particularly low interest rates are driving many future homeowners to reject variable rate credit offers. A change in attitude that pushes the banking sector to adapt.


Some banks, like ING for example, have started to provide information on the margin level of so-called reversible rates, in which customers fix the rate for a period of up to ten years, after which the mortgage goes to a floating rate.

“Some customers insist on having some kind of insurance so that the bank doesn’t start charging unreasonably high rates after the fixed period ends. This is why we added an annotation concerning the contracts ”, insists Marc Geib.

Loyal clientele

The obligation to include these margins is not yet on the agenda because nothing is moving on the side of Brussels. “We are not aware of any plans at EU level on this,” says Judith Gledhill, spokesperson for the banking association ABBL.

That said, the risk to clients remains minimal as variable rate loans can be easily transferred to another institution almost for free. But this process has not yet entered the mentality of the country. “Some banks have a very traditional clientele, who would not even consider changing bank, regardless of whether another offer is better,” concludes Marc Geib.


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