FIRST ACTIVE has reduced the size of new mortgages it will offer civil and public servants due to the rising cost of bank funding.

The bank is the latest financial institution to move again to tighten lending rules as the cost of wholesale funding remains high.

First Active, which is part of the Ulster Bank Group, the State’s third-largest mortgage lender, has restricted the loan-to-value (LTV) ratio it will offer civil and public servants to 92 per cent of the property’s value, down from 95 per cent. The bank has already withdrawn its 100 per cent mortgages to borrowers and has reduced the maximum LTV on mortgages to professionals, and civil and public servants from 100 per cent to 95 per cent last month.

A spokeswoman for First Active said it was still offering mortgages of up to 95 per cent LTV to professionals. The bank is reducing the cap on residential investment mortgages to 80 per cent LTV, down from 85 per cent.

The changes came into effect yesterday, though the bank intends to honour all applications already agreed.

First Active raised its tracker rates for new mortgages last month and halved the commission payments to mortgage brokers to 0.5 per cent from last Thursday.

Ulster Bank is withdrawing from the broker market from the end of this month and will sell mortgages through its 131 branches, leaving First Active to sell mortgages through brokers.

The cost of borrowing in euro for three months, which forms the benchmark for bank lending across Europe, remains unchanged yesterday at 4.86 per cent, its highest level since December 18th. This is 0.86 per cent above the ECB base rate of 4 per cent, which compares with the margin of 0.1-0.15 per cent above the ECB rate last year.