New mortgage rules demanding an increased deposit from buyers are a blunt instrument and discriminatory as well, Fine Gael MEP Brian Hayes has said.

The Central Bank recently proposed that borrowers should be required to have a 20 per cent deposit when purchasing a property, with some exceptions. It is also seeking an income cap of 3.5 times for home loans. The bank has now put the new rules, aimed at preventing a potential property bubble, out to consultation.

With average property prices in the Dublin area at some €350,000, Mr Hayes said the task of saving €70,000 to use as a deposit was "impossible" for many young people when wage and rent levels were taken into account.

"Demanding a 20 per cent deposit is a blunt instrument that discriminates against particular groups," he said. "In fact, Ulster Bank said recently that, had the 20 per cent restriction applied in the last year, nearly 70 per cent of those first-time buyers wouldn't have got a loan from them."

He warned that the 20 per cent deposit restriction “will have unintended consequences, which will help no one”.

Mr Hayes, a Dublin MEP and former minister of state, said there were many measures that could be introduced to prevent a future property bubble “without dumping on first-time buyers”.

He recommended a ban on interest-only mortgages; a restriction on mortgages exceeding 25 years in length; only applying the 20 per cent deposit to buyers who were trading up or buying to let; and the Central Bank insisting that a high percentage of future mortgages be fixed interest for a minimum period of 10 years.

Sharon Donnery, the Central Bank's director of credit institutions supervision, has defended the new rules, saying they were "proportionate limits" on home loans.