As interest rates go up, the amount that banks are willing to lend is dropping, leaving first-time buyers with less access to money to buy properties that are still surging in value.

Lenders typically draw the line when loan repayments start creeping above 40% of borrowers' take-home pay. So, as repayments go up in line with interest rates, more mortgage applications are likely to end up in the rubbish bin.

"Someone who was in a position to buy two months ago may no longer be able to, " says Ronan Morris, chief executive of Blue Sky Mortgages, a home loans broker. "First-time buyers will have to moderate their expectations."

Back in November, a couple on combined earnings of 60,000 a year could have qualified for a mortgage of 330,000. Nine months and four interest rate hikes later, this has dropped by 40,000 to about 290,000, according to Shane Connole, head of sales at IFG Mortgages. To add to their woes, the property the couple could have bought in November probably costs about 10% to 20% more today.

The lending cutbacks will be a bitter blow to househunters who thought they had a mortgage in the bag.

"Many people seek approval in principle first . . . which is for either three or six months . . .

before starting the house hunting, " Connole says. "Those whose approval expires prior to the house closing may be in for a nasty shock when they go to complete the transaction, and could find themselves 20,000- plus short at closing."

The good news for some is that, because their earnings or savings have gone up in the meantime, they may still qualify for the original loan. But the drip-drip effect of interest rate hikes . . . two more are on the cards before the end of the year . . . has left many others in limbo.

"The only certainty is that it will be a lot more difficult to get what you want, " says Peter Bastable, managing director of Simply Mortgages, a home loans broker. "How are people going to make up the shortfall? Because you can be certain that house prices aren't going to drop in a hurry. Will parents be asked to dig even deeper to help their children get a start on the property ladder?"

First-time buyers, who typically borrow most if not all of the price of their homes, are not the only ones feeling the pinch, according to Bastable.

Many people have cashed in on the equity in their existing properties to trade up to a trophy home of their dreams.

This means heavy borrowing, with seven-figure mortgages no longer out of the ordinary, especially in Dublin. To keep the payments low, many are arranged on an interest-only basis where none of the borrowed money is being repaid.

"There's no doubt that people who have borrowed 1m-plus on an interest-only basis . . . and there are a lot of them out there . . . are counting the cost of higher interest rates, " says Bastable.

Assuming that the two expected rate hikes come to pass by Christmas, the payments on an 800,000 mortgage will have surged by 1,000 a month in the space of a year.

This is based on interest-only payments for a tracker mortgage that shadows base rates by a margin of 1.25%.

"By year-end, it looks like interest rates will be double what they were a year ago, " says Bastable. "This has got to have an impact for people who went for broke during the property boom. I'm not talking just about wealthy developers. You've got many people on decent incomes who borrowed maybe 800,000 for a home of their dreams, another 250,000 for a place in Spain with perhaps a buy-to-let apartment or two on top."

Because of their strong earnings, Bastable does not believe they will be wiped out by the interest rate spike. Still, he says, they will have to tighten their belts.

"These people have plenty of scope to pull back on their spending so, instead of changing the car right now, they might have to wait another year, " he says. "But trimming back like this is bound to make a dent in consumer confidence."

The big question is how high must interest rates go before house prices begin to wobble.

"You can't deny that interest hikes have an impact on demand, but that's only part of the supply-demand equation, " Morris says. "It will have an impact on house prices, but not necessarily in the way you'd expect. The property market has behaved irrationally in the past and maybe the up-tick in interest rates will have the effect of making it behave more rationally."

Strong growth in the workforce, and thousands of new immigrants looking for somewhere to live will continue to support house prices even as interest rates rise, Morris says.

Even if prices begin to soften in new developments in out-ofthe-way places, house builders can be expected to turn off supply in an attempt to halt the slide.

"Some commentators are saying higher interest rates will have an immediate, direct impact on prices, but property growth is not driven solely by interest rates, " says Morris.

"Even without the low interest rates of recent years, we'd still have had a property boom."

Even if their hopes have been dented, Morris says firsttime buyers should not abandon all hope, though they may have to make do with a property that falls short of what they were hoping for.

"It's too strong to say that first-time buyers have been priced out of the market by higher interest rates, " he says.

"There are still affordable properties out there if buyers are prepared to moderate their expectations about where they're willing to live."