Bank of Scotland has initiated discussions with the Irish regulatory authorities about selling mortgages in the Republic by telephone and over the Internet. The move is part of a European-wide initiative by the bank to increase its share of the mortgage market.

Bank of Scotland, which owns Equity Bank, is expanding in the Republic both through acquisition and increasing its telephone banking services. The bank is understood to have begun to complete the necessary formalities to secure a licence from the Central Bank that would enable it eventually to sell mortgages in the Republic.

Equity Bank chief executive Mr Mark Duffy said if the proposal is successful the direct mortgage banking operation is likely to be run from its new premises in Clonskeagh in Dublin.

Bank of Scotland is one of the largest providers of direct banking services in the UK, selling a range of product through its offices in Edinburgh and Dunfermline. It also has a direct banking operation that provides personal banking products through intermediaries.

A number of UK and Continental European banks are also believed to be interested in selling mortgages in the Irish market. Two UK financial institutions are currently in discussions with independent mortgage brokers with a view to selling their products, while a number of others are said to be considering setting up telephone or Internet banking services.

Signs of increased competition in the mortgage market should prove to be good news for Irish consumers. The UK institutions which are in talks with the independent mortgage brokers have indicated that they are prepared to sell mortgages here at up to 0.5 of a percentage point below the average variable mortgage rate.

Meanwhile major European players such as the Belgian KB Bank have recently expanded in the Republic. KB, which owns Irish Intercontinental Bank, now owns Irish Life Finance. Eventually it could introduce new mortgage products here based on long-term low European interest rates.

The Republic is a highly attractive market for institutions selling mortgages because of the huge profit margins being earned by the major banks and building societies here. At current rates, banks and building societies can borrow funds in the market at interest rates as low as 2.5 per cent while charging home-owners an average standard variable rate of interest of around 5.25 per cent.