This year has possibly been one of the best ever for Irish mortgage holders. For the first time Irish lenders really felt the heat of competition and, when combined with the move to the euro, most borrowers saw huge reductions in their mortgage repayments.

It was also the year when lenders came out of the closet about lending more money than traditional guidelines would allow. At the start of the year, the Construction Industry Federation called for multiples to be increased but few lenders would admit publicly to breaching the limits. The Central Bank stepped into the fray, writing to all lenders about their concern that over lending would add even more fuel to the fire. Nevertheless, many lenders began to admit that they used different criteria and there was little the Central Bank could do.

The EBS remained on the outside of this. Although by the end of the year it, too, had moved towards a net income formula, at least for those borrowers considered to be quite safe, such as teachers and nurses and other public servants.

But the most far reaching change was the changeover to the euro. While notes and coins will not be in circulation for another two years, the mortgage market has felt the full impact.

It began in November, 1998, when the European Central Bank cut interest rates and all the lenders here followed. For most of 1999, that trend continued. The ECB eventually cut rates to 3 per cent, heralding the lowest mortgage rates for home owners.

However, it was the arrival of the Bank of Scotland in August which brought really major benefits. Up to that time, Irish lenders had been taking the highest margins of almost any others across the EU. Wholesale interest rates were 3 per cent but many lenders were charging a variable rate of up to 5.5 per cent. Bank of Scotland came in with 3.99 per cent, a lower margin than expected.

At first, the Irish lenders tried to ignore it saying that the Scottish bank was no threat but within three weeks the two biggest banks - AIB and Bank of Ireland - had moved to match Bank of Scotland and within weeks nearly all the others had followed suit.

HOWEVER, the ensuing close scrutiny of the lenders did throw up some interesting anomalies. Irish Nationwide said for the first time that it did not have a standard variable rate and many borrowers who had thought they were benefiting from lower rates found that this was not the case.

Interest rates are now certainly on the way back up. Already, the ECB has raised rates once and more is probably on the way over 2000.

The first rise was almost immediately taken advantage of by the Irish lenders. Within days, Irish Permanent had moved its rates back up and Bank of Ireland and First Active quickly followed. Bank of Scotland remains the cheapest lender. But how long the lenders in general will hold their rates to these low levels remains to be seen.

Despite this pressure, the new element of competition in the market is likely to be here to stay. There are other possibilities. German-style mortgage bonds may be introduced. These allow lenders access to far cheaper funds than they would otherwise have access to. The introduction does need some legislative change and work is under way in the Department of Finance.

In the meantime, economists are predicting that interest rates may be about 1.5 percentage points higher within two years. That would mean interest rates of about 5 per cent, which would imply mortgage rates of around 7 per cent.