From central bank policy rate to national mortgage rate — across 7 major economies
Data as of 2026-07-01Every central bank rate decision flows through a three-stage chain to reach the homeowner:
Set by the central bank (Fed Funds, ECB Deposit, Bank Rate, etc.)
SOFR, €STR, SONIA, BBSW, CORRA, TONA, MIBOR
Country-specific fixed and variable products
A mortgage rate is the interest you pay on a home loan. It comes in two main flavours: a fixed rate stays the same for a defined period (30 years in the US, a weighted member-country basket in the Eurozone, 2-5 years in the UK), while a variable rate moves up and down with short-term market rates. Choosing between them is essentially a bet on where rates are headed — fix today and you sleep well if rates rise, float and you save money if rates fall.
When the Federal Reserve hikes its policy rate by 25 basis points, the typical 30-year US mortgage does not immediately rise by 25 bp. That is because mortgage rates depend on more than just the policy rate. The first step in the chain is an interbank reference rate — short-term benchmarks like SOFR (US), €STR (Eurozone), SONIA (UK) or TONA (Japan). These are the rates at which banks lend to each other overnight, and they track the policy rate very closely. From there, lenders build a mortgage rate by adding a margin to cover their funding cost, credit risk, operating expenses, and profit.
That is why a 5% policy rate can produce a 7% fixed mortgage in the US, a different weighted Eurozone mortgage basket, and a 1.5% variable in Japan all at the same time. Transmission depends on local product structure, lender competition, the local long-bond yield, and regulation. The page below tracks how much of each rate hike actually reaches borrowers, and how long it takes.
A fixed-rate mortgage prices off the maturity-matched risk-free curve plus a credit-and-funding stack. The canonical US 30Y conforming rate decomposes roughly as 10Y Treasury + primary-secondary MBS basis + originator margin, with the MBS basis (currently ~150-180 bp versus a long-run average near 120 bp) absorbing most of the cyclical variation. In the Eurozone, the relevant funding leg differs by member country: German and Dutch covered-bond products, French capped-rate fixed loans, and Italian or Spanish fixed-rate bank loans do not share one benchmark curve.
Regulatory frictions vary materially. France's taux d'usure caps newly originated mortgage rates at the prior-quarter market average plus one-third, mechanically lagging market repricing and producing the quarterly origination shutdowns observed during the 2022-2023 hiking cycle. Germany's Festzinsbindung norms (5/10/15Y common, with §489 BGB granting prepayment rights only after ten years) lock both lender and borrower duration, so transmission to the stock of outstanding debt is slow. Australia's variable-rate dominance (~70% of stock) combined with monthly board-of-directors repricing reviews produces near-immediate pass-through. The UK 2Y/5Y reset structure sits in between: roll-off concentration in mortgage maturities creates lumpy repricing waves with a ~24-month lag that the BoE explicitly models in its MPR transmission appendices.
US 30Y prepayment optionality is the dominant non-linear factor in mortgage pricing globally. Because US borrowers can refinance without prepayment penalty, the MBS investor is implicitly short a call on rates; the Option-Adjusted Spread (OAS) framework prices this convexity, and OAS-driven hedging by MBS originators amplifies duration shocks (the "convexity vortex" of 2003 and 2022). European 10Y products with restricted prepayment (Germany, Denmark fixed-rate, France pre-2022) embed only a token prepayment fee and so trade much closer to swap+covered-spread without OAS adjustment. This is why US mortgage rates exhibit higher beta to the long end of the curve than European peers, even after controlling for policy-rate pass-through.
Typical national fixed mortgage rate vs. policy rate. Spread = mortgage − policy.
| Country | Policy Rate | Interbank | Typical Fixed Product | Mortgage Rate | Spread vs Policy | Source |
|---|---|---|---|---|---|---|
|
United States Federal Reserve | 3.62% | SOFR 4.32% | 30-Year Fixed 30-year tenor | 6.55% | +2.92pp | Estimated |
|
Eurozone European Central Bank | 2.25% | €STR 2.41% | Eurozone Weighted Fixed Benchmark 10-year tenor | 3.59% | +1.34pp | Estimated |
|
United Kingdom Bank of England | 3.75% | SONIA 3.73% | 2-Year Fixed (75% LTV) 2-year tenor | 5.55% | +1.80pp | Estimated |
|
Australia Reserve Bank of Australia | 4.35% | BBSW 3M 4.46% | 3-Year Fixed (Owner-Occupier) 3-year tenor | 6.73% | +2.38pp | Estimated |
|
Canada Bank of Canada | 5.25% | CORRA 2.78% | 5-Year Fixed (Insured) 5-year tenor | 4.55% | +-0.70pp | Estimated |
|
Japan Bank of Japan | 0.30% | TONA 1.00% | Flat 35 (35-Year Fixed) 35-year tenor | 3.21% | +2.91pp | Estimated |
|
India Reserve Bank of India | 5.25% | MIBOR 5.52% | 20-Year EBLR-Linked 20-year tenor | 7.63% | +2.38pp | Estimated |
The "implied 12-month forward mortgage path" combines the implied policy rate path from interest rate futures with each country's historical spread, smoothed by a country-specific pass-through factor and transmission lag. The pass-through reflects how much of a policy rate change typically reaches the borrower; the lag reflects how long it takes.
Australia and the UK have the fastest transmission (90-95% pass-through within 1-2 months). Japan has the slowest (40% pass-through over 9 months) because Japanese variable mortgages are pegged to a sticky short-term prime rate that the major banks adjust only rarely. The United States sits in the middle because the dominant 30-year fixed rate prices off long-term Treasury yields, not the policy rate directly.
The historical spread chart shows the long-run relationship; the forward path applies it to current futures pricing. This is not a forecast — it is the rate level consistent with current market pricing of central bank policy.