Understanding German Mortgages.

Mortgage lenders in Germany allow you to borrow up to 100% of the property value (although you will have to cover some other costs of buying a house, such as purchase fees, with your own equity). While some German banks will be willing to finance the full amount, loans of around 80% are more common.

A major German community-oriented bank that wants to bring its model to Ireland believes it could play a role in solving the housing crisis. Sparkasse, the biggest bank in Germany, wants to create an alternative to the major commercial banks, particularly in regional towns.

The European Investment Bank has indicated support for the €200m project, said Sparkasse. That support is conditional on the proposal receiving political backing in Ireland. So far, this has been slow to materialize.

Sparkasse, which issues half of all German mortgages at rates well below standard Irish rates, believes Ireland is ideal for its municipality-owned, non-profit model.

The 200-year-old bank is aimed squarely at SMEs and the middle segment of the market. In Germany, where it has 300,000 staff in hundreds of branches, it is part-owned by each local authority. Each regional bank operates and lends in its own area but is backed by a central organization providing shared services, IT, and banking transaction support.

Supporters of the proposal believe it would provide an ideal middle ground between the troubled credit union sector and the two big Irish commercial banks.

Indeed, Sparkasse has proposed to the Irish League of Credit Unions that they could avail of the central shared services system if it is established.

But invitations issued by the German organization to the Departments of Finance and Rural Affairs to see how it operates in Germany have so far been turned down. Both departments said that the idea – mentioned in the Programme for Government – will be dealt with in a report which is being prepared.

-To put this into perspective, according to the Banking & Payments Federation Ireland (BPFI), the average first-time buyer mortgage is now around €250,000. This means a typical first-time buyer who’s borrowing that amount over 30 years will pay almost €180 a month more for their mortgage compared to the Eurozone average, or almost €2,200 a year.

-As mentioned previously, recent data from the Central Bank shows that the average mortgage rate in the Eurozone was 1.28% in October.

However, the average APRC (annual percentage rate of charge), which includes any set-up fees or administration charges that have to be paid by borrowers, and which are common in many European countries, is about 30 basis points higher at 1.60% or so. In reality, this should be the interest rate against which Irish rates are compared.

So what extra mortgage fees do banks charge here?

In general none.

Irish banks might charge a high rate of interest but they charge few (or none) of the set-up and admin fees that banks in other countries commonly charge.

Market size

Ireland is a small country. Compared to France or Germany there is a far smaller mortgage market so lenders here don’t have the same economies of scale as elsewhere. This impacts on the rates we’re charged too, but probably not as much as the issues above.

This article was written by Stephanie Fries who was a German apprentice interning at Irish Mortgage Brokers in April 2022


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