The study also found that 80% of the total opportunity lies in targeting consumers at the riskier end of the market, for instance, those with a poor credit history. It adds that the European mortgage industry is at a turning point. For the past 10 years the market has been driven by rising house prices and low credit losses. But future growth is expected to come from higher risk segments of the market that will require banks taking on greater risk.

In Italy, for example, banks tend to charge between 25 and 40 basis points more for a 15-year variable-rate loan where borrowers can only put down a deposit of less than 20% of the value of the property. In Switzerland, secondary mortgages are typically 75 to 100 basis points more expensive than a primary mortgage for five-year fixed loans.

The growth potential in Germany stems from the country's low proportion of home ownership. Other countries like Italy and Spain also have huge potential for growth, but actual expansion will depend on how quickly there is a shift in cultural factors, such as the tendency of young people in both countries to live at home until they marry.

"The European mortgage industry is at a turning point," observes Sacha Polverini, chair of the Mortgage Insurance Trade Association. "The past 10 years has seen excellent asset growth rates for the majority of lenders, which have been driven by rising house prices and falling interest rates, low credit losses and a relatively stable economic environment."

Mercer Oliver director Matthew Sebag-Montefiore adds that, "The commercial pressures on mortgage lenders have never been greater, with margins falling in most countries, the credit cycle turning and house prices now stagnating in many markets." He went on to say that "in this tough operating environment" changes in global banking regulations are threatening to flood capital into the mortgage sector.

"This leaves lenders with a very tricky question as to where they can find the next wave of profit growth," he says. "The challenges of risk management and funding in this segment are significant but ultimately, for the winners, that makes the profit pool all the more defensible."