Middlesbrough have told the Hornets they will either have to buy Andrew Taylor or increase the percentage of wages they pay for the full back, the Watford Observer understands.

Taylor's loan spell at Vicarage Road ends on January 5 and Watford are keen to retain his services.

However, with only six months left on Taylor's contract at the Riverside, we understand Boro have told Watford they are not willing to subsidise the 24-year-old's stay in Hertfordshire at the current rate.

Taylor's current wages are outside the financial model Watford have introduced in recent seasons but the club are looking into ways of retaining his services, even if it is only on loan.

Malky Mackay does not like to openly discuss negotiations involving other clubs' players but after seeing Taylor score his first professional goal yesterday, did confirm he wants to keep the full back.

Mackay said: “We are in dialogue with Middlesbrough at the moment and we will be hoping to bring him back. But we have to be respectful that he is someone else's player and has a contract somewhere else. W are in the middle of dialogue at the moment.”

Jordon Mutch's loan at Watford also ends on January 5 and the Hornets are keen to extend his stay.

Birmingham City manager Alex McLeish has confirmed Mutch will return to the club because the 19-year-old has still not signed a new contract despite his current deal expiring at the end of this season.

Watford now find themselves in a similar position to last year, where Arsenal's Henri Lansbury was not allowed to extend his loan at the Hornets until he had signed a new contract.

Whilst the situation is out of Watford's control, we understand the club are confident of Mutch returning to Vicarage Road should he sign a new contract in the coming weeks.

Mackay confirmed the club are looking at possible replacements but stressed Watford would prefer Mutch and Taylor to stay.

“We’re looking at the various options but ideally I would like to keep the players we’ve got,” Mackay said.

“ They enjoy being here and they enjoy their time here and their education here, and I think they are both better players for being here, so it would certainly suit us getting them back.”

Watford's bench in recent games has had the average age of less than 20 and Mackay laughed off the suggestion of any more of the club's youngsters possibly being loaned out this month.

“I don’t think there is any possibility that we could loan any more players out,” Mackay stated.

Nathan Ellington's loan with Greek side Skoda Xanthi has expired but Watford are desperate to loan him out once more due to the striker being the club's highest earner.

Jure Travner should remain at St Mirren until his contract with Watford expires in the summer and it is hoped big-earner Mat Sadler will also do the same at Shrewsbury Town.

Striker Liam Henderson (Colchester United) and young defenders Tom Aldred (Stockport County), Eddie Oshodi (Dagenham and Redbridge) and Rob Kiernan (Bradford City) are also out on loan and Mackay says Watford are in talks about extending their spells away from Vicarage Road beyond January.

Mackay said: “We’ll talk to the clubs where the other players are out on loan [about extensions] to further their football education and that might be something that we do.”

Watford do have a small squad though and when asked if any of the quartet may be recalled, Mackay replied: “Again, maybe after Monday we’ll need to sit down and look at that and have a look at where the squad is in terms of how far from fitness certain people are and the size of our squad. We will see.”