Bidders for EBS Building Society are competing for the prize of more than €10bn in high-value variable rate mortgages which could generate significant interest income as rates continue to get pushed higher.

Second-round bids were submitted last Friday for the building society, which needs to get €775m in fresh capital before the end of the year. It is understood Irish Life & Permanent (IL&P) and three private equity groups – JC Flowers, Doughty Hanson and Cardinal Asset Management – are competing to buy it.

About 60% of EBS's mortgage customers are on standard variable rates (SVR), with another 20% on fixed rates which will ultimately revert to SVRs. Just 20% are on trackers. That means more than €10bn of the building society's loans have the potential to produce greater income from future rate rises.

This makes the book especially attractive to IL&P, which has mostly trackers in its €40bn mortgage portfolio and makes relatively little from rate rises. It is understood IL&P sees the EBS acquisition as profit enhancing, rather than a play for improving its dire loan-to-deposit ratio.

Market sources said last week IL&P and JC Flowers were considered favourites to advance in the bidding process. IL&P's bid is understood to include a plan for co-ownership with the government which would avoid the upfront losses expected from a private equity takeover.