FIRST-TIME BUYERS will have to put up an extra €5,570 in cash on a deposit for the average house after the State's largest mortgage lender Permanent TSB introduced more restrictions on new lending.

The bank, which has a fifth of the mortgage market, said yesterday it was capping home loans to first-time buyers at 90 per cent of the property's value, having already reduced its ceiling to 92 per cent in recent months due to falling property prices and higher funding costs driven up by the credit crisis.

The latest move will further reduce affordability for first-time buyers, forcing them to raise larger cash deposits when borrowing from Permanent TSB.

The bank is also substantially increasing its two-year fixed-rate mortgage and withdrawing three-year and four-year fixed rates.

Permanent TSB is attempting to slow new lending as the credit crunch keeps wholesale money costs near seven-year highs, squeezing bank profit margins.

Frank Conway, director of Irish Mortgage Corporation, said the change would force first-time buyers to turn to other lenders.

He said most first-time buyers had "migrated" to loan-to-value (LTV) ratios above 90 per cent.

More than two-thirds of first-time buyers borrowed 90 per cent or more of the property's value in the second half of last year. Almost half borrowed mortgages on an LTV ratio of 93 per cent or higher.

Permanent TSB is capping the maximum LTV mortgage to second-time buyers at 85 per cent and at 75 per cent on refinancing cases and switching mortgages.

A spokesman for the bank said these were "prudent modifications" in "current market conditions".

The spike in the cost of two-year and three-year money over the last month has forced the bank to raise its two-year fixed rates for existing customers by 0.65 per cent to 6.35 per cent, and for new customers by 0.96 per cent from its discount rate of 5.39 per cent to 6.35 per cent. This means new customers will have to pay the bank an extra €150 a month on a €250,000 mortgage with a term of 30 years.

It will effectively price the bank out of the market on the two-year fixed product as other lenders are offering lower rates, though some banks have withdrawn the two-year product due to higher costs.

Permanent TSB's standard variable rate will rise above the 6 per cent mark unless the credit crisis eases and the wholesale cost of money to the banks falls.

The bank has said its standard variable rate will have to increase by up to 0.5 of a percentage point from its current level of 5.69 per cent over the summer if its funding costs do not fall.

Variable rates on residential mortgages have not risen above 6 per cent in almost a decade.

Ulster Bank's standard variable rates stands at 5.79 per cent, while its sister bank First Active has a rate of 5.89 per cent.

A spokeswoman for the banking group said it was currently reviewing its rates.

Lenders are being forced to pass on higher funding costs to customers with increased mortgage rates. Banks are continuing to increase their own mortgage rates, even though the European Central Bank (ECB) has kept its benchmark rate at 4 per cent.

The ECB has indicated it may have to raise rates next month, which will increase mortgage costs for customers on tracker rates.

The ECB rate, which determines tracker rate costs, is no longer seen by banks as a relevant gauge for lending costs due to the surge in wholesale money costs.