RTL Today – Financial Sector Supervisory Commission: No risk of property bubble bursting ‘for the time being’, says CSSF director
In light of rising interest rates, Claude Marx, the Director General of the Financial Sector Supervisory Commission (CSSF), addressed concerns about the mortgage sector and clarified Luxembourg’s position on financial regulations during an interview with RTL Radio.
On Thursday morning, the Director General of the CSSF shed light on the escalating interest rates and their implications for mortgages during an appearance on RTL Radio. He explained that interest rates have surged from 0% to 4.5% within a year, making access to credit notably more challenging. Households with variable-rate mortgages have experienced substantial spikes in their monthly repayments. However, despite these developments, the risk of the property bubble bursting has not increased according to Marx, who clarified the situation in a statement to RTL Radio, saying, “not yet, no.”
Marx disclosed that 1.4% of all home loans currently exhibit instability, a slight increase from the 2022 figure of 1%. As for bridging loans, 5% are categorised as “difficult.” Nevertheless, Marx noted that the aggregate value of all bridging loans amounts to €60 million, compared to €48 billion when considering all home loans.
Bridging loans are sought by households when simultaneously purchasing a new home and selling their existing one. An August article on the reporter.lu news website highlighted hundreds of households grappling with tripled or quadrupled monthly payments. Marx acknowledged that such an escalation in monthly expenses can be daunting for many, but he underscored the importance of being aware of the inherent risk associated with such loans and being prepared to manage two concurrent loan repayments.
Marx stressed that neither the state, nor the political sphere, nor the banks possess the means to alter interest rates. The European Central Bank (ECB) determines the key interest rate, and banks are obligated to maintain risk margins. Despite these limitations, the CSSF’s Director General noted that banks are assisting their customers by extending loan terms. Marx also dismissed the notion that customers were poorly advised when offered variable-rate mortgages before the interest rate hike, citing the current 60% prevalence of fixed-rate loans.
Addressing the claim that authorities imposed stricter equity requirements on banks for loan approval, Marx clarified that such requirements are not applicable to first-time home buyers. He pointed out that, historically, customers were required to contribute one-third of their own capital. In Marx’s view, the challenges in securing mortgages stem not only from interest rates but, above all, from the significant surge in housing prices.
Gafi assessment
In an upcoming Gafi evaluation report, Luxembourg’s efforts in combatting money laundering reveal significant progress compared to 2010. However, the report highlights a notable lack of investigative resources. According to Marx, this assessment points to a rather positive evaluation of Luxembourg’s legal framework. Nonetheless, the Council of Europe’s Group of Experts’ report identifies areas for potential improvement.
Marx acknowledges the dedication of key entities such as the police, the Financial Intelligence Unit of the Public Prosecutor’s Office, and examining magistrates, emphasising that the latter are “highly motivated.” However, he suggests that increasing their numbers might be beneficial.
Is the CSSF too strict?
Addressing occasional criticisms within the financial sector regarding the CSSF’s perceived stringency and occasional sluggishness, Marx reaffirms the agency’s commitment to maintaining rigorous oversight. He stressed that major financial institutions generally prefer a meticulously regulated financial centre. In his perspective, the CSSF’s thorough regulatory approach does not factor significantly into why some funds opt for Ireland.
While Ireland presents itself as a competitive financial hub, particularly for Exchange Traded Funds (ETFs), the preference for Ireland stems from its more favourable double taxation treaty with the United States. For alternative funds, Luxembourg, according to Marx, maintains its appeal and remains an attractive choice for investors.
