Mortgage lending tools for Luxembourg
The Luxembourg mortgage market has significant specificities compared to neighbouring countries. The banking sector is dominated by local players (Spuerkeess/BCEE, BIL, BGL BNP Paribas, Raiffeisen) and international banks (ING, Deutsche Bank) offering differentiated terms.
Interest rates in Luxembourg follow the European Central Bank (ECB) decisions, with a typical bank spread of 80 to 150 basis points above the refinancing rate. In 2025, 10-year fixed rates stand around 3.0 to 3.8%, while variable rates (indexed to 3-month EURIBOR) range from 3.2 to 4.0%.
The CSSF (Commission de Surveillance du Secteur Financier) regulates lending practices through its circulars and recommendations, notably regarding LTV (Loan-to-Value) ratios and repayment capacity. Since 2020, the Systemic Risk Committee (CRS) has issued macro-prudential recommendations specific to the Luxembourg market.
LTV ratio and CSSF thresholds
The Loan-to-Value (LTV) ratio is the ratio between the loan amount and the property value. The CSSF and CRS have issued differentiated LTV cap recommendations:
- First-time buyers (primary residence): recommended maximum LTV of 100% (full financing possible under conditions). In practice, banks frequently grant LTVs of 90 to 100% to first-time buyers benefiting from the State guarantee.
- Non-first-time buyers (primary residence): recommended maximum LTV of 90%, i.e. a 10% deposit.
- Buy-to-let investment: LTV capped at 80%, requiring a minimum 20% deposit. Some banks are more restrictive (75%).
- Buy-to-let: specific conditions apply, sometimes with 70% LTV thresholds and rate premiums of 20 to 50 bps.
Importantly, the LTV is calculated on the appraised value of the property, not the purchase price. If the purchase price exceeds the appraisal, the bank will use the lower value.
Borrowing capacity and the 40% rule
Borrowing capacity is determined by the debt-to-income ratio, which should generally not exceed 40% of net household income in Luxembourg. This threshold is more generous than in some neighbouring countries (35% in France, 33% in Belgium).
- Income considered: net salary, rental income (generally retained at 70-80%), self-employment income (3-year average), pensions.
- Deducted charges: existing loans, alimony, residual rent if applicable.
- Residual income: beyond the debt ratio, Luxembourg banks verify a minimum residual income threshold (approximately EUR 1,200/month for a single person, EUR 2,000 for a couple).
Our simulator calculates the maximum admissible monthly payment and derives the maximum borrowable amount based on the chosen duration and rate.
Repayment: constant vs progressive
Luxembourg banks mainly offer two types of repayment schedules:
- Constant repayment (fixed annuities): the monthly payment remains fixed throughout the loan term. The interest portion decreases progressively while the principal portion increases. This is the most common scheme in Luxembourg.
- Linear repayment (constant principal): the principal repayment is identical each month, producing decreasing monthly payments. Interest decreases regularly. This scheme is more advantageous in total interest cost but requires higher initial payments.
- Bullet (interest-only): only interest is paid during the loan term, with principal repaid in full at maturity. Used mainly for buy-to-let investments with a life insurance policy as collateral.
Our amortisation table details month-by-month the evolution of outstanding principal, the interest/principal split and the total credit cost.
DSCR for buy-to-let investment
The Debt Service Coverage Ratio (DSCR) is a ratio used by banks to assess a rental property's ability to cover debt service:
DSCR = Net Operating Income / Annual Debt Service
- A DSCR above 1.20 is generally required by Luxembourg banks for a buy-to-let mortgage.
- A DSCR of 1.00 means that rents exactly cover repayments — a risky situation in case of vacancy or unforeseen events.
- A DSCR below 1.00 means the investor must supplement debt service from personal income.
For the calculation, net income includes a normative vacancy allowance (generally 5 to 8%), non-recoverable charges and a maintenance provision. Debt service includes both interest and principal repayment.