Competition in the mortgage market stepped up again yesterday as Bank of Ireland introduced new tiered interest rates on its tracker mortgages.

Trackers are the new breed of home loans where lenders' margins are set at a fixed percentage above the European Central Bank (ECB) base rate.

The best interest rate Bank of Ireland is offering to new customers is 2.95 per cent, which matches the lowest tracker mortgage available from AIB.

The Bank of Ireland 2.95 per cent rate is aimed at people, usually those trading up, who borrow more than €200,000 but whose loan is less than 60 per cent of the property price.

AIB's qualifying criteria for its lowest rate are looser, however, as it is available on all mortgages with a loan-to-value (LTV) of less than 60 per cent.

Cheaper tracker mortgages are also available from Ulster Bank for current account holders, and from First Active for mortgages with very small LTVs.

Mr Scott Rankin, an analyst at Davy Stockbrokers, said the key question for Bank of Ireland was whether its new rates, aimed at new customers only, would have an effect on the profits it gleaned from its existing customer base.

The Bank of Ireland move follows EBS's decision last week to enter the tracker mortgage market, with a single rate of 3.25 per cent for all customers.

Meanwhile, Bank of Ireland reduced its six-month and one-year discounts on its standard variable rate, but increased its one-year fixed rate from 2.59 per cent to 2.75 per cent.

The interest paid to variable rate deposit Special Savings Incentive Account (SSIA) customers was cut by a quarter of a point to 1.75 per cent.