Lenders ought to be able to offer substantially cheaper mortgages if legislation is changed to allow the introduction of German-style loan products here. The new mortgage products which may appear in Ireland over the next year will very closely resemble those based on the so-called German "Pfanbrief" or special mortgage bond.

According to Paul Devenney, treasurer at the IFSC unit of one of Germany's biggest mortgage banks, Rheinhyp, rates could fall by about three quarters of a percentage point from where they would otherwise be.

These bonds have been in existence in Germany for over a century and versions are also available in countries such as Austria, the Netherlands, Switzerland and Denmark.

They allow lenders to offer cheaper loans than they otherwise could by giving them access to less expensive money on the global money markets.

Currently, the bonds issued to raise funds for mortgage loans are generally collateralised deutschmark-denominated bonds issued by German mortgage banks. Most have a credit rating of AAA, higher than many governments. This allows them to raise money cheaply in the markets. None has ever missed an interest or capital repayment, even during World Wars One and Two, a fairly formidable achievement.

As a result, investors are willing to lend money cheaply to the financial institutions issuing the bonds. In turn, this is passed on to borrowers and many German mortgages are available at just over 5 per cent for periods of up to 10 years. The equivalent Irish mortgage is around 6.5 per cent.

The market has grown enormously over the last decade and is now bigger than the German government bond market and twice the size of the UK gilt market.

To achieve the low interest rates, the quality of the bonds is extremely high. They are based on very conservative valuation criteria and loan-to-value ratios of around 60 per cent. Critically, they also involve unlimited issuers' liability and strict supervisory structures. Both of these will need legislative change in Ireland to be introduced.

According to Mr Michael Lennon, head of funding at EBS, the assets invested in such bonds need to be protected in the event of a liquidation and to be protected from other creditors. This is not currently part of Irish law, but is the key attraction for investors in the bonds.

The bonds are also governed by strict rules on the amounts of money that can be devoted to financing building plots and other more speculative developments.

The German and now the European mortgage banks associations have been pushing to widen the market with the advent of the euro. This would mean that all banks in the euro area would be able to issue the bonds, increasing the market even further. Some European bankers believe it could rival the US Treasury market in time.

These new bonds are not the same as the securitised mortgages recently undertaken by Irish Permanent and First Active, which are off balance rather than on balance sheet, euro version.