Significant interest rate cuts now appear to be on the cards, as the major lenders rapidly assess their competitive positions following Bank of Scotland's entry into the market. One Irish bank is even considering matching Bank of Scotland's low variable mortgage rate of 3.99 per cent, while the others are planning quite substantial rate cuts in response to Irish Permanent's half point cut in its variable mortgage rate last week.

Some financial institutions are considering major revamps of interest rates across different categories of borrowers - where higher risk customers such as first-time buyers will be charged higher rates than other, more secure borrowers.

It is expected such changes will be unveiled over the coming days, with deposit rates also under review.

The main lenders are likely to hold fire on mortgage rate cuts until this weekend and into next week, although it is possible that some smaller groups may choose to cut this week to get the headlines ahead of the big banks and EBS.

Last Friday, Irish Permanent cut its variable interest rate to 4.75 per cent, the lowest rate among domestic lenders. However, it is still significantly above Bank of Scotland's 3.99 per cent.

One bank is understood to be considering matching Bank of Scotland's rate in order to put pressure on the new arrival in the marketplace before it unveils its full range of product offerings.

This sort of dramatic move may also be attempted in order to deter other British and European entrants from trying to join the market. It is new entrants that are seen as the biggest competitive threat to Irish lenders over the medium term.

Some lenders are also looking at changes to their fixed rate mortgage loans.

Others say they would like to change their entire product offering but only want to do this once.

They want to avoid a price war and thus are considering pitching rates at a level they hope will prove low enough for the foreseeable future.

Officially, all the lenders yesterday merely restated that they were constantly looking at their rates in the light of ongoing developments and none would confirm when or indeed if they would be cutting rates again.

Upon its arrival, many of the lenders had not considered Bank of Scotland's entry to the market to be too much of a competitive threat. It was not targeting first-time buyers, as 20 per cent deposits were needed, and was only offering variable rate loans.

However, there is growing opinion that should this "toe in the water" approach work, a more serious threat would soon develop with a number of British and even Continental lenders likely to enter the market.

That would change the playing field altogether for the Irish lenders and is something they would be keen to avoid. However, sharp cuts in borrowing rates - without reductions in already low deposit rates - are likely to prove very expensive. Irish Permanent's half point cut is forecast to cost some £11 million in full-year profits; a larger cut would have to be justified to shareholders.