Opinion of the European Central Bank of 27 September 2019 on additional macroprudential tools for residential mortgages (CON/2019/34) 
Date: 2019-09-27
Institutions: European Central Bank
Subjects: Luxembourg, debt, financial solvency, financial stability, financial supervision, national law, real estate credit

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 27 September 2019 

on additional macroprudential tools for residential mortgages 

(CON/2019/34) 

Introduction and legal basis 

On 29 July 2019, the European Central Bank (ECB) received a request from the Luxembourg Ministry of 

Finance for an opinion on draft governmental amendments to the draft law on macroprudential measures 

on  residential  mortgage  loans  in  Luxembourg  and  amending  the  Law  on  banking  and  the  Law 
establishing the Luxembourg Systemic Risk Committee1 (hereinafter the ‘draft amendments’). 

The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the 
Functioning of the European Union and the sixth indent of Article 2(1) of Council Decision 98/415/EC2, as 

the draft amendments relate to rules applicable to financial institutions insofar as they materially influence 

the  stability  of  financial  institutions  and  markets.  In  accordance  with  the  first  sentence  of  Article 17.5  of 

the Rules of Procedure of the European Central Bank, the Governing Council has adopted this opinion. 

1. 

Purpose of the draft amendments  

1.1  The draft amendments are introduced to the draft law on macroprudential measures on residential 
mortgage  loans  in  Luxembourg3  (hereinafter  the  ‘draft  law’).  The  draft  law  proposed  new 

macroprudential  measures  to  be  taken  by  the  Commission  de  Surveillance  du  Secteur  Financier 

(CSSF,  Financial  Sector  Supervisory  Commission)  regarding  conditions  for  the  granting  of  loans 

secured  by  mortgages  on  residential  property  located  in  Luxembourg  by  credit  institutions, 

insurance companies and professionals performing credit operations. These measures include: the 

loan-to-value  (LTV)  ratio,  the  loan-to-income  (LTI)  ratio,  the  debt-to-income  (DTI)  ratio,  the  debt-

service-to-income (DSTI) ratio and maturity limits (hereinafter collectively referred to as ‘borrower-

based measures’).  

1.2  According to the explanatory memorandum, the purpose of the draft amendments is to follow up on 

the  formal  opposition  to  the  draft  law  as  expressed  by  the  Luxembourg  Conseil  d’État  (State 

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2  

3  

Amendements gouvernementaux au projet de loi n°7218 relative à des mesures macroprudentielles portant sur les 
crédits  immobiliers  résidentiels  et  portant  modification  de:  -  la  loi  modifiée  du  5  avril  1993  relative  au  secteur 
financier; - la loi du ler avril 2015 portant création d'un comité du risque systémique et modifiant la loi modifiée du 23 
décembre 1998 relative au statut monétaire et à la Banque centrale du Luxembourg. 

Council  Decision  98/415/EC  of  29  June  1998  on  the  consultation  of  the  European  Central  Bank  by  national 
authorities regarding draft legislative provisions (OJ L 189, 3.7.1998, p. 42). 

Projet  de  loi  n°7218  relative  à  des  mesures  macroprudentielles  portant  sur  les  crédits  immobiliers  résidentiels  et 
portant modification de: - la loi modifiée du 5 avril 1993 relative au secteur financier; - la loi du ler avril 2015 portant 
création  d'un  comité  du  risque  systémique  et  modifiant  la  loi  modifiée  du  23  décembre  1998  relative  au  statut 
monétaire et à la Banque centrale du Luxembourg. 

 
 
 
 
                                                 
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Council)  in  the  context  of  the  national  legislative  procedure4.  In  its  opinion,  the  Conseil  d’État 

requests  a  precise  definition  of  the  normative  framework  within  which  the  CSSF  may  act  when 

deciding  on  the  application  of  borrower-based  measures  for  loans  secured  by  mortgages  on 

residential property under the draft law. In response to this, the draft amendments more precisely 

define the normative framework within which the CSSF may act in this respect.  

1.3  First, the draft amendments define a cumulative list of conditions that must be met for the CSSF to 
adopt  borrower-based  measures5.  These  conditions  are:  (1)  the  activation  of  the  measures  can 

help to counteract the malfunctioning of the national financial system or reduce the accumulation of 

risks  to  national  financial  stability  arising  from  developments  in  the  real  estate  sector  in 

Luxembourg, and (2) no other measures that may be taken under the Law of 5 April 1993 on the 
financial sector, Regulation (EU) No 575/2013 of the European Parliament and of the Council6 or 

their implementing acts, taken independently or together, would allow these risks to be adequately 

mitigated.  In  order  to  strengthen  this  mechanism,  an  explicit  duty  is  imposed  on  the  Comité  du 

Risque Systémique (CdRS, the National Systemic Risk Committee) to assess whether, in the event 

of  a  sustained  and  persistent  increase  in  house  prices  and  in  the  volume  of  loans  secured  by 

mortgages  on  residential  property  coupled  with  a  significant  deterioration  of  the  ratios  of  the 

borrower-based  measures,  such  developments  indicate  a  vulnerability  in  the  national  financial 

system or pose a risk to national financial stability.  

1.4  Second,  the  draft  amendments  restrict  the  scope  of  the  borrower-based  measures  that  may  be 

adopted pursuant to the draft law by expressly excluding credit contracts in force at the time of the 

decision by the CSSF. 

1.5  Third, the  draft amendments introduce corridors for the maximum limits that  the CSSF can  apply 
when adopting borrower-based measures7. These corridors are: (1) 75 to 100% for the maximum 

limit for the ratio between the total credit obligations of a borrower and the total market value of a 

given property (LTV ratio); (2) 400 to 1200% for the maximum limit for the ratio of the total amount 

of a borrower’s repayment obligations resulting from a loan secured by a mortgage on residential 

property  and  the  borrower’s  total  available  annual  income  (LTI  ratio);  (3)  400  to  1200%  for  the 

maximum  limit  for  the  ratio  between  the  borrower’s  total  indebtedness  and  the  borrower’s  total 

available annual income (DTI ratio); (4) 35 to 75% for the maximum limit for the ratio between the 

total annual mortgage charges and the borrower’s total available annual income (DSTI ratio); and 

(5) 20 to 35 years for the maximum limit for the initial maturity of the loan (maturity limits). 

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7  

The Conseil d’Etat must issue its opinion on draft laws, and must, in particular verify the draft laws’ conformity with 
the Constitution of Luxembourg, international treaties, Union legal acts and general principles of law on the basis of 
Article 1 of the Law of 16 June 2017 on the organisation of the Conseil d’État (Loi du 16 juin 2017 sur l’organisation 
du Conseil d’État).  

See  the  draft  amendment  to  draft  Article  59-14bis(1)  of  the  Law  of  5  April  1993  on  the  financial  sector  (La  loi 
modifiée du 5 avril 1993 relative au secteur financier). 

Regulation  (EU)  No  575/2013  of  the  European  Parliament  and  of  the  Council  of  26  June  2013  on  prudential 
requirements  for  credit  institutions  and  investment  firms  and  amending  Regulation  (EU)  No  648/2012  (OJ  L  176, 
27.6.2013, p. 1). 

See amendment to draft Article 59-14bis(2) of the Law of 5 April 1993 on the financial sector. 

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1.6  Finally,  the  draft  amendments  remove  from  the  draft  law  the  possibility  that  the  CSSF  may 

recognise conditions set down by the national authorities of other Member States for granting loans 
for property located in those Member States and apply them to the entities under its supervision8.  

2. 

General observations  

2.1  As emphasised in previous opinions9, from a financial stability perspective, the ECB welcomes the 

implementation  of  a  legislative  framework  for  borrower-based  measures  in  all  euro  area  Member 

States.  The  ECB  notes  its  recommendation  to  add  borrower-based  instruments  to  the  European 

macroprudential  toolkit,  such  as  limits  on  LTV,  LTI  or  DSTI  ratios,  which  are  known  to  be  more 
effective  in  addressing  risks10.  The  ECB  also  welcomes  the  core  objective  of  the  envisaged 

legislative  framework  on  borrower-based  measures  under  the  draft  law,  namely  to  equip  the 

Luxembourg authorities with macroprudential tools to be used in the event of threats to the stability 

of  the  national  financial  system  due  to  developments  in  the  Luxembourg  real  estate  sector.  This 

objective is also in line with the principles set out in the ESRB’s Recommendation on intermediate 

objectives and instruments  of  macro-prudential policy, in particular  with regard  to the  objective to 
mitigate and prevent excessive credit growth and leverage11. 

2.2  The  ECB  understands  that  the  sole  objective  of  the  draft  amendments  is to  ensure  that  the  draft 

law complies with national constitutional law, following the formal opposition of the Conseil d’État, 

and  therefore  aims  to  circumscribe  the  powers  of  the  CSSF  in  relation  to  the  adoption  of 

macroprudential measures. The Conseil d’État has noted that these powers touch upon a field that 

is normally reserved to the law and not to the regulatory power by the Constitution of Luxembourg, 
namely the freedom to trade protected by Article 11(6) of the Constitution12. The ECB understands 

that  the  conditions  and  limits  imposed  on  the  powers  of  the  CSSF  to  adopt  macroprudential 

measures  are  required  in  order  for  these  measures  to  be  legally  sound  within  the  national 

constitutional legal framework. 

2.3  The  ECB  has  already  delivered  its  opinion  on  the  draft  law13.  The  ECB  notes  that  the  draft 

amendments  do  not  amend  the  aspects  on  which  the  ECB  has  previously  opined.  Against  this 

8  

9  

10  

.11  

12  

of 

the 

See  paragraph  1.4  of  Opinion  CON/2018/9.  All  ECB  opinions  are  published  on  the  ECB  website  at 
www.ecb.europa.eu. 
See paragraph 2.3 of Opinion CON/2017/11; paragraph 2.4 of Opinion CON/2017/21 and paragraph 3.2 of Opinion 
CON/2018/9. 
See  paragraph 1.2  of Opinion  CON/2017/46; ECB  contribution  to  the  European Commission’s  consultation  on the 
review 
at 
policy 
https://www.ecb.europa.eu/pub/pdf/other/revieweumacroprudentialpolicyframework201612.en.pdf. 
See paragraph 2.2 of Opinion CON/2017/11 and paragraph 2.3 of Opinion CON/2017/21; Recommendation of the 
European Systemic Risk Board of 4 April 2013 on intermediate objectives and instruments of macro-prudential policy 
(ESRB/2013/1) (OJ C 170, 15.6.2013, p. 1); Warning of the European Systemic Risk Board of 22 September 2016 
on  medium-term  vulnerabilities  in  the  residential  real  estate  sector  of  Luxembourg  (ESRB/2016/09)  (OJ  C  31, 
31.1.2017, p. 31). See also Recommendation of the European Systemic Risk Board of 27 June 2019 on medium-
term vulnerabilities in the residential real estate sector in Luxembourg (ESRB/2019/6). Not yet published in the Official 
Journal of the European Union.  

macroprudential 

framework, 

available 

page 

EU 

5, 

See the opinion of the Conseil d’État (Avis du Conseil d’Etat, 20.3.2018, Projet de loi n°7218 relative à des mesures 
macroprudentielles  portant  sur  les  crédits  immobiliers résidentiels  et  portant  modification  de: -  la  loi  modifiée  du  5 
avril 1993 relative au secteur financier; - la loi du ler avril 2015 portant création d'un comité du risque systémique et 
modifiant la loi modifiée du 23 décembre 1998 relative au statut monétaire et à la Banque centrale du Luxembourg), 
p.2. 

13  

See Opinion CON/2018/9. 

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background,  the  ECB  reiterates  the  observations  made  in  its  previous  opinion14.  The  ECB 

emphasises,  in  particular,  that  the  Banque  centrale  du  Luxembourg  (BCL)  should  play  a  leading 

role in macroprudential oversight, given BCL’s expertise and existing responsibilities in the area of 
financial stability15.  

3. 

Specific observations 

3.1  Corridors for the maximum limits for the ratios of the borrower-based measures 

In  general,  the  ECB  stresses  that  the  relevant  authorities  should  have  the  capability  to  act  in  a 

flexible and proportionate way when setting and calibrating macroprudential measures, in order to 
address effectively and efficiently potential risks to financial stability16, while acting within the pre-

established legal framework. The ECB understands that the draft amendments introduce corridors 

for  the  maximum  limits  for  the  ratios  of  the  borrower-based  measures  in  order  to  comply  with 

national  constitutional  requirements.  Available  information  on  borrower-based  measures  adopted 
by other Member States17 suggests that the lower limits for the foreseen corridors for the LTV, LTI, 

DTI  and  DSTI  ratios  under  the  draft  law  are  close  to  the  ratios  that  are  applied  in  most  of  these 

Member  States.  In  that  context,  a  reduction  of  the  lower  limits  of  the  corridors  in  respect  for  the 

LTV, DTI, LTI and DSTI ratios, to the extent possible within the national constitutional framework, 

would ensure effective policy action, taking into account changing macro-financial conditions. Such 

a  reduction  of  the  lower  limits  would  also  allow  for  the  potential  application  of  stricter  limits,  for 

instance  for  buy-to-let  purposes,  for  non-first  time  buyers,  as  well  as  under  stress  scenarios. 

Moreover, the upper limits for the income based ratios (LTI, DTI and DSTI ratios) under the draft 
law  may  be  considered  as  too  high18  given  that  such  corridors  might  implicitly  be  interpreted  as 

normative  guidance  for  acceptable  or  prudent  lending  standards.  Finally,  the  ECB  suggests  a 

regular  review  of  the  corridors,  in  order  to  allow  the  Luxembourg  authorities  to  take  into  account 
policy experience and the implications of changes in macroeconomic and financial conditions19. 

3.2  Conditions for the activation of the borrower-based measures 

It  is  important  that  the  decisions  on  the  activation  of  borrower-based  measures  are  taken  in  a 

prudent  and  preemptive  manner,  in  order  to  mitigate  the  intensification  of  risks  at  an  early  stage 

and  prior  to  the  actual  deterioration  of  the  respective  lending  ratios.  In  this  regard,  the  ECB 

understands that the draft amendments introduce certain conditions related to financial stability that 

must  be  met  for  the  activation  of  borrower-based  measures  in  order  to  comply  with  national 
constitutional  requirements20.  The  activation  of  the  borrower-based  measures  is  based  on  a  two-

14  
15  

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17  

18  
19  

20  

See paragraphs 2 and 3 of Opinion CON/2018/9. 

See  paragraph 2 of  Opinion  CON/2018/9.  See  also  paragraph  5.2  of  Opinion  CON/2014/46  and paragraph  2.3  of 
Opinion CON/2018/34. 

See paragraph 2.3 of Opinion CON/2017/11. 
Due  to  the  lack  of  harmonisation  of  borrower-based  measures  and  the  related  statistical  data,  there  is  limited 
information  available  to  compare  these  measures  across  Member  States.  See  ESRB,  Overview  of  national 
measures of macroprudential interest, available on the ESRB’s website at www.esrb.europa.eu. 
Compared to applied income-based measures in other euro area countries. 

See  paragraph  2.3  of  Opinion  CON/2017/11;  paragraph  2.4  of  Opinion  CON/2017/21;  paragraph  2  of  Opinion 
CON/2016/8. 
According  to  the  explanatory  memorandum,  the  conditions  set  forth  for  the  authorities  of  other  Member  States,  in 
particular for the German authorities, were taken into account in this context. 

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step  mechanism.  First,  the  CSSF  should  act  following  a  recommendation  issued  by  the  CdRS 

where  it  has  found  a  malfunctioning  of  the  national  financial  system  or  the  existence  (or 

emergence) of a risk to national financial stability stemming from developments in the real  estate 

sector. The CdRS can issue recommendations on corrective measures to address identified risks 

to financial stability, including recommendations concerning macroprudential tools used to achieve 

the objectives of macroprudential policy and intermediary objectives, by virtue of the Law of 1 April 
201521. Second, this mechanism is reinforced by the clarification that certain predetermined events 

trigger  the  compulsory  assessment  of  the  situation  by  the  CdRS  (i.e.  a  sustained  and  persistent 

increase in house prices and in the volume of loans secured by mortgages on residential property, 

coupled  with  a  significant  deterioration  of  the  ratios  when  granting  loans).  The  ECB  understands 

that  this  two-step  mechanism  would  generally  allow  the  Luxembourg  authorities  to  activate 

borrower-based measures with a forward-looking perspective. 

3.3  Sequencing of the activation mechanism of the borrower-based measures 

The ECB understands that the proposed sequencing of the activation mechanism of the borrower-

based  measures  (the  so-called  ‘pecking  order’)  is  justified  by  the  need  to  comply  with  national 

constitutional requirements. The ECB reiterates its stance, with regard to Union legislation, that the 

pecking  order  should  be  removed  as  it  constitutes  a  deterrent  regarding  the  selection  of 
instruments and results in a bias towards inaction22. Macroprudential instruments should be chosen 

on the basis of their effectiveness and appropriateness, and not of mandatory sequencing. Against 

this  background,  and  taking  the  constitutional  constraints  in  Luxembourg  into  account,  the  ECB 

encourages the Luxembourg authorities to regularly review the application of the pecking order in 

order to ensure that it does not result in an inappropriate bias towards inaction in the activation of 

borrower-based measures.  

3.4  Reciprocity of borrower-based measures applied by authorities of other Member States 

The  ECB  reiterates  the  importance  of  the  cross-border  recognition  of  macroprudential  policies  to 

foster the effectiveness of national macroprudential policies, as well as to pre-empt leakages in the 

financial  system  and  ensure  a  level  playing  field  for  domestic  and  foreign  banks.  The  European 
Systemic  Risk  Board  also  encourages  the  reciprocation  of  macroprudential  tools23.  The  ECB 
supports this approach24. It is crucial to extend reciprocity to the extent possible under Luxembourg 

law,  unless  the  relevant  authority  provides  a  reasoned  justification  not  to  apply  the  measure  to 

other exposure-based measures, including activity-based measures that address risks to domestic 

21  

22  
23  

24  

See Article 2 of the Law of 1 April 2015 establishing the National Systemic Risk Committee (La loi du ler avril 2015 
portant création d'un comité du risque systémique et modifiant la loi modifiée du 23 décembre 1998 relative au statut 
monétaire et à la Banque centrale du Luxembourg). 
See paragraph 1.2 of Opinion CON/2017/46. 
Recommendation of the European Systemic Risk Board of 15 December 2015 on the assessment of cross-border 
effects of and voluntary reciprocity for macroprudential policy measures (ESRB/2015/2) (OJ C 97, 12.3.2016, p. 9), 
the  consolidated  text  can  be  found  on  the  Publication  Office’s  website  at  www.eur-lex.europa.eu  or  the  European 
Systemic  Risk  Board’s  website  at  www.esrb.europa.eu.  The  concept  of 
this 
Recommendation  as  ‘an  arrangement,  whereby  the  relevant  authority  in  one  jurisdiction  applies  the  same,  or 
equivalent,  macroprudential  measure,  as  is  set  by  the  activating  relevant  authority  in  another  jurisdiction,  to  any 
financial institutions under its jurisdiction, when they are exposed to the same risk in the latter jurisdiction’.  
See  the  ECB’s  contribution  to  the  European  Commission’s  consultation  on  the  review  of  the  EU  macroprudential 
framework,  page  16  to  17,  available  on  the  European  Commission’s  website  at  www.ec.europa.eu.  See  also 
paragraph 1.2 of Opinion CON/2017/46. 

‘reciprocity’ 

is  defined 

in 

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exposures (such as LTV, LTI, and DSTI ratios) and sectoral capital requirements . Some Member 
States  have  enshrined  the  reciprocation  of  borrower-based  measures  in  their  national  law25. 

Against this background, the ECB recommends establishing, within the limits of the national legal 

framework,  the  possibility  for  the  CSSF  to  recognise  borrower-based  measures  taken  by  the 

national authorities of other Member States.  

This opinion will be published on the ECB’s website.  

Done at Frankfurt am Main, 27 September 2019. 

[signed] 

The President of the ECB 

Mario DRAGHI 

25   

See paragraph 1.3 of Opinion CON/2017/21. 

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