Competition may be about to pick up in the mortgage market, with two UK financial institutions preparing to enter the market.

The two unidentified companies are in discussions with Irish mortgage brokers about offering mortgage products to Irish consumers at up to a half of one percentage point lower than Irish banks and building societies charge.

Mr Michael Dowling, managing director of Gunne Financial Services, said talks were continuing and that the British mortgage providers could begin offering their products here by the end of the year. Mr Dowling, who is also president of the Independent Mortgage Brokers Federation, said it was hopeful that the discussions would reach a successful conclusion.

The Republic is an attractive market for lenders, with financial institutions able to make substantial margins particularly on variable rate mortgages.

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 about 5.25 per cent.

If an agreement is reached, the British banks could begin to offer standard variable mortgages at below 5 per cent.

The British institutions are proposing to set up a small back-office operation in the Republic, selling their products through brokers.