Interest rates are set to fall as early as next week as the European Central Bank bows to pressure from the US and politicians to make money cheaper and give the German economy a boost.
The likely cut of a quarter of a percentage point would almost certainly be followed by the lenders, given the very competitive environment they are in.
However, they also point out that, generally, rates for savings have remained high relative to euribor, with many institutions paying 1 per cent above that level.
Nevertheless it could mean that standard Irish variable rates will fall below 5 per cent for the first time, with discounted rates possible of around 4.5 per cent.
At the moment standard variable rates vary from 5.1 per cent at EBS to 5.95 per cent at ACC - the most expensive on the market and almost three full percentage points above the cost of money in the market.
The money markets are now expecting a cut in interest rates as early as next week or in April because of the very slow growth in Germany and Italy and very low levels of inflation, which in France and Germany is running at just 0.2 per cent over 12 months.
The fear is that Germany at least could slip into deflation if interest rates are not cut. This would mean that people would put off buying in the belief that if they wait the price will fall.
But even if interest rates are cut, fixed rates are likely to increase, Colin Hunt, chief economist at Goodbody Stockbrokers warned. He added that the markets are already raising the cost of longer term money and if the ECB cuts rates, they will decide that it is the German finance minister, Oskar Lafontaine, who is actually calling the tune.
"The markets would say the German finance minister Mr Lafontaine got his way and the ECB is not calling shots. That would damage the central bank's credibility and should lead to an increase in longer term interest rates," he said.
According to Mr Hunt, borrowers should now think about taking out five-year fixed rate loans, which are on offer at around 5 per cent from AIB and EBS and just under 5.4 per cent from Ulster Bank. He added that these rates are extremely attractive option for anyone to take and over five years the downside is quite limited.
At the moment, the German economy is quite weak, which is why rates are so low but over five years, it will rebound as growth and activity pick up and that will lead to an increase in interest rates.
Rates at 3 per cent are as low as they have been in Germany since the 1960s and, indeed, rates have only fallen to these levels in reaction to the stock market crash in 1987 and following the oil crisis in the 1970s which led to stagnation. Over that same time, German interest rates peaked at 8.8 per cent following German unification.
Certainly, anyone with a large loan which they would find difficult to repay if rates were to rise ought to think seriously about the five-year option, although some of the rates on offer, such as ACC's 5.75 per cent and First Active's 6.1 per cent for existing customers are not very attractive.
Of course, borrowers should also be aware of the highs cost associated with breaking the contract and the lack of flexibility when it comes to making any additional payments.
However, ICS will allow up to 10 per cent of the value of the loan to be repaid every year, which is useful for anyone expecting a lump sum or perhaps bonus payments. ICS's five-year rate is around 5.3 per cent.
These loans are still not proving very popular and the vast majority of borrowers are still opting for one-year fixes or the variable rate. However, lenders expect this to change as borrowers focus on rising rates over the longer term and get into deals now. A three-year fixed rate is already available at under 5 per cent from EBS and at 5 per cent from Irish Nationwide and AIB.
