Banks and building societies have been accused in today’s Mail on Sunday of increasing their profits by keeping mortgage rates high for new borrowers and customers who are reaching the end of special deals. 

Vince Cable, Liberal Democrat Treasury spokesman, said last week that lenders were holding back economic recovery and a revival in the housing market by rebuilding capital reserves rather than cutting mortgage rates.

On Friday, consumer group Which? asked the Government to force the part-nationalised banks, Halifax, Lloyds Banking Group and Northern Rock, to pass on cheaper interest rates to borrowers. 

 Vera Cottrell, policy advisor at Which? told Financial Mail:

“With the base rate at 0.5% most borrowers with variable rate loans are comfortable with their mortgage payments, even if the premium they are paying over base rate is larger than ever, but what concerns us is the future when the base rate spikes up.

‘Then, many of these borrowers will struggle to make their payments and will face the horrible prospect of repossession.”

Figures from the financial information company moneyfacts.co.uk show that the difference between the base rate and the cost of the average two-year tracker loan for new borrowers has significantly increased over the last year.

A year ago, the base rate stood at 5%, with the average two-year tracker loan charging interest at 6.51%, which was a difference of 1.51%. 

Today, with the base rate at 0.5%, the average two-year tracker mortgage costs 3.77%, which means that the difference has increased to 3.27%, which is slightly more than twice as much as a year ago.

The cost of funds that lenders borrow on wholesale money markets to make new tracker loans has also dropped sharply. The cost, which is set by a rate known as three-month Libor, has fallen from 5.95% in July 2008 to below 1%. 

Mortgage analysts agree that there is hardly any chance of lenders reducing their margins to benefit borrowers unless the Government intervenes.