The war in the mortgage market looks set to heat up again, however much the Irish-based lenders play down the latest rate cut by the Bank of Scotland. Consumers will benefit even if employees in some of the lending institutions suffer in the shape of jobs losses as part of the drive to push down costs to compete with the new entrant - the low cost telephone-based direct operator, Bank of Scotland.

No sooner had the native Irish lenders dropped their variable mortgage rates to meet the competitive 3.99 per cent offering from the Bank of Scotland, than the new entrant decided to drop its rates again.

The response from the native players the second time around echoes the head-in-the-sand response of First Active managing director John Smyth to the Bank of Scotland's arrival in August. At that time Mr Smyth was in the unfortunate position to be announcing his first-half results just as Bank of Scotland launched its arrival into the Irish market. He was not getting "overly excited" about the new arrival, he said - a remark he must surely now regret having had to cut rates to match the new entrant and to launch a full review of operations to cut costs.

This time around most of the native mortgage lenders, who have all had to cut rates to match the first Bank of Scotland offering, were at pains to indicate that they would not respond to the rate cut. Head in the sand again?

Some lenders went so far as to suggest that Bank of Scotland had to cut its rate again - to 3.69 per cent - because it had not managed to lure away customers from the other lenders with its 3.99 per cent rate. The native lenders made much of the provision of "approvals" figures rather than "draw-downs" by the Bank of Scotland. Approvals of around £250 million do not mean anything, the argument goes, because many prospective homebuyers seek approval from a number of institutions. In addition, some borrowers will use the availability of lower rates elsewhere as bargaining chips to force their existing lender to reduce rates.

The other argument from the native lenders is that it would not pay borrowers to move to take advantage of the latest rate cut - it would cost them more to leave an existing lender who has already matched the first Bank of Scotland offer.

The jury will be out on the approvals/draw-downs debate for a while yet. And the situation is complicated by the requirement that transferring customers give their existing lenders eight to 12 weeks notice - so even if draw-downs are low now they could start to increase rapidly in coming weeks when mortgage holders become free to move. But it must be a worry that Bank of Scotland can so easily cut its rates again.

It insists that it is pleased with its performance so far and that it is on target to do between £150 million and £200 million of business in its first year. Its second rate cut, it insists, reflects the high quality of the loans it has been able to approve - good sized loans with a low-loan-to-value amount.

Whatever the current state of play, the native lenders have been shaken by the arrival of a dynamic low-cost provider in the market. Life will never be the same again - it is hard for bricks and mortar based operations to compete effectively against telephone-based services in what is effectively a commodity market. Current Account expects to see serious moves to cut costs at the main mortgage lenders and not a little industrial unrest in coming months.