The number qualifying for home loans this year will tumble to a 12-year low as banks turn away borrowers by rationing the amount of available mortgage loans, new forecasts show.

Selling group the Independent Mortgage Advisers' Federation (IMAF) predicts Irish banks will advance 35,000 loans worth only €6bn this year, down by a quarter from the 46,000 loans worth €8bn the lenders advanced last year.

Rising interest rates and the higher thresholds banks are setting prospective first-time borrowers to qualify for home loans will continue to drag the market to new lows next year too.

"Severe rationing is back on," said IMAF senior director Michael Dowling.

"AIB and Bank of Ireland, which offer the most competitive mortgage rates, will not entertain a borrower without savings. The message is not getting out to first-time buyers that they need savings to qualify for loans."

IMAF warns that as the banks continue to increase variable interest rates even before the European Central Bank hikes its official interest rates that the numbers of first-time buyers qualifying for loans will likely fall again next year.

The average home loan will rise to 4% early next year compared with the current cheapest available rate of 2.99%.

The funding crisis facing European banks, which has hit Irish lenders particularly hard, continues to push variable mortgage rates higher.

Only three lenders are actively chasing the first-time buyers by offering competitive rates, IMAF says.

AIB and Bank of Ireland currently offers the cheapest home loan rates to borrowers seeking to borrow over 80% of the value of the property with respective rates of 2.99% and 3.1%.

EBS also offers a 3.1% rate for borrowers seeking more than 85% of the value of the home.

Dowling said lenders are able to dismiss mortgage applications by looking for high level of savings. Even public sector workers with pensionable jobs such as teachers are failing to secure mortgages if they have no savings. "No savings means no mortgage," he said.