Mortgages - why the difference?

Herr Tubthumper · Apr 11, 2016

Here's a genuine question, German 10 year fixed mortgages come at a rate of 1.35%. Looking at similar UK products they're twice the interest rate. Why is this? What causes this? I would have thought money was at a similar rate? And if it isn't surely a UK bank would borrow off the 1.35% bank and then sell on cheaper rates to the UK?

Please note this isn't a Wouldn't Happen in German or EU agenda....I'm genuinely interested in knowing the cause and reasons for this substantial difference.

Genuine replies only please.

Rugrat · Apr 11, 2016

Here's a starter

1. To recover all the costs of PPI and whatever fines they get hit with after that
2 Bank bonuses in the UK are better than Germany
3. Because they can

mune ni kamome · Apr 11, 2016

It used to be more commonly known as " Rip off Britain".

Bombadier Botty · Apr 11, 2016

That is a shocking disparity! 10 years as well.

Weezle · Apr 11, 2016

Different currencies- euros v pounds. Rates are lower in Europe than the UK.

Herr Tubthumper · Apr 11, 2016

Bombadier Botty said:
That is a shocking disparity! 10 years as well.

I agree. You can get a 15 year fix for about 1.5% which easily trumps any UK mortgage. As I say, international banks must have access to the same money.

One Teddy Maybank · Apr 11, 2016

Herr Tubthumper said:
I agree. You can get a 15 year fix for about 1.5% which easily trumps any UK mortgage. As I say, international banks must have access to the same money.

Very interesting thread. In my naivety, surely a strength of remaining in Europe would be if we could benefit from this?

studio150 · Apr 11, 2016

Different view of how interest rates will perform over the 10 year period. UK view would be they are likely to increase more than the German view. All about ensuring return on money being lent.

Triggaaar · Apr 11, 2016

One Teddy Maybank said:
Very interesting thread.

Yep.

In my naivety, surely a strength of remaining in Europe would be if we could benefit from this?

We're been in the EU for long enough and clearly not getting such a good deal.

Lord Bracknell · Apr 11, 2016

Rugrat said:
Here's a starter

1. To recover all the costs of PPI and whatever fines they get hit with after that
2 Bank bonuses in the UK are better than Germany
3. Because they can

I think you mean to say:-

2. Bank bonuses in the UK are worse than in Germany, where they take the interests of the customer more into account.

beorhthelm · Apr 11, 2016

Herr Tubthumper said:
I agree. You can get a 15 year fix for about 1.5% which easily trumps any UK mortgage. As I say, international banks must have access to the same money.

they do? the ECB has set their interest rate to 0% and money markets follow the central bank rate. im sure there's a number of other factors meaning German mortgage rates are traditionally below that of UK rates, currently the number one reason is the very low interest rate due to the state of the Euro.

Herr Tubthumper · Apr 11, 2016

beorhthelm said:
they do? the ECB has set their interest rate to 0% and money markets follow the central bank rate. im sure there's a number of other factors meaning German mortgage rates are traditionally below that of UK rates, currently the number one reason is the very low interest rate due to the state of the Euro.

But international banks must have access to the same pots of money? So in some respects surely your theory doesn't hold?

Triggaaar · Apr 11, 2016

Herr Tubthumper said:
But international banks must have access to the same pots of money? So in some respects surely your theory doesn't hold?

It's not completely based on central funds, they have to take into account the currency fluctuations. If I borrow in pounds, and they get the funds centrally with low interest, I will later pay back in pounds which may then be worth less.

I'm still surprised at the difference as per your OP though.

ofco8 · Apr 11, 2016

Probably the same reason that we pay much more for our utilities than other European countries, even those owned by German and French companies.

Because British consumers are a soft touch. That is why Apple etc. turn us over.

KingstonSeagull · Apr 11, 2016

As someone has highlighted above the EU monetary policy committee have set base rate below zero. Mortgages are priced on base rate therefore as our base rate is 0.5% innevitably you are going to pay more. I am not sure what international pot of money you're referring to but this does not exist. It is all based on A. Market Rates and B. How much banks are paying to orignate the cash to provide these mortgages.

Tried to explain this in simple terms if you want a more in depth analysis let me know(I work in Mortgages).

beorhthelm · Apr 11, 2016

Triggaaar said:
I'm still surprised at the difference as per your OP though.

the difference is about 1.5-2% which is about consistent with historic difference. it looks a bigger margin when looked at in isolation of the current context.

there is a difference to account for beyond the basic cost of money in Euro, maybe a Deutsch-phile could illustrate the many cultral and market differences between UK German that might explain this (preference to rent rather than borrow, lower LTV ratios so less risk for starters)? its not all milk and honey, the German banks are screwed at these levels because they cant make any money, see Deutsch Bank scare a few weeks ago.

LamieRobertson · Apr 11, 2016

Herr Tubthumper said:
Here's a genuine question, German 10 year fixed mortgages come at a rate of 1.35%. Looking at similar UK products they're twice the interest rate. Why is this? What causes this? I would have thought money was at a similar rate? And if it isn't surely a UK bank would borrow off the 1.35% bank and then sell on cheaper rates to the UK?

Please note this isn't a Wouldn't Happen in German or EU agenda....I'm genuinely interested in knowing the cause and reasons for this substantial difference.

Genuine replies only please.

What's the German housing market like stability wise?

KingstonSeagull · Apr 11, 2016

You've got to look at the otherside of the coin. You can't get diddly if you're a german saver literally 0% return if you put your money in the bank in Germany. I know what you get here is not great either but you can get some return at least. It is all about monetary policy, the EU are keeping rates low in order to stimulate the economy and bring future demand forward to do so. If you discourage saving by offering nothing in savings then the hope is people will spend their money instead of store it away for a rainy day. You could well find that if they decide to do another bout of Quantative Easing that inflation will inevitably go up and the banks will be forced to increase rates thus seeing not only savings rates go up but also the rates you pay on your mortgages(provided you havent fixed it in of course)

Herr Tubthumper · Apr 11, 2016

KingstonSeagull said:
As someone has highlighted above the EU monetary policy committee have set base rate below zero. Mortgages are priced on base rate therefore as our base rate is 0.5% innevitably you are going to pay more. I am not sure what international pot of money you're referring to but this does not exist. It is all based on A. Market Rates and B. How much banks are paying to orignate the cash to provide these mortgages.

Tried to explain this in simple terms if you want a more in depth analysis let me know(I work in Mortgages).

By international pot, I mean that say Barclays, who have a European presence, can surely borrow some European money to lend out at the lesser rate in the UK? i thought banking is an international game and banks are not restricted to their geographical location? I have not understanding of this so I could be talking tripe.

beorhthelm · Apr 11, 2016

Herr Tubthumper said:
By international pot, I mean that say Barclays, who have a European presence, can surely borrow some European money to lend out at the lesser rate in the UK? i thought banking is an international game and banks are not restricted to their geographical location? I have not understanding of this so I could be talking tripe.

that would leave them exposed to a large currency risk. generally you borrow and lend in your local currency, unless you are private equity and you have a risk profile and margin that overcomes the currency risks (and can hedge a lot of it).

people do borrow on Euro accounts to buy in the UK, there was a trend for a few years ago, but i think the (european) banks stopped doing this so much after 2008.

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