The structure of the markets in Ireland and Britain differs in that the bulk of mortgage loans are based on variable rates and not fixed rate mortgage loans,which are common across most of continental Europe.
Variable rates in Ireland are closely linked to short term interest rate changes by the ECB, while German mortgage interest rates are linked to the ten-year German bond on the long term sovereign debt market.
A ten-year fixed rate mortgage in Germany last week was quoted at an average of 4.8 per cent, said Christian Wallburg, a spokesman of the 19-member Association of German Mortgage Banks in Berlin. But as in Britain, German banks levy a standard margin of around 1 per cent on the cost of their funds. For the German banks the margin is loaded on the cost of the ten-year benchmark German bond, which was trading last week at 3.66 per cent.
"We have seen [a margin] of 60 basis points in the past on extreme competition,'' Wallburg said. Consolidation among German mortgage lenders has helped to drive out some competition and the economic downturn, which has led to more defaulting loans, has caused German banks to increase margins in the past year.