Banks blamed for high cost of mortgages and lack of funds

Banks in the UK are coming under heavy criticism for the high cost of property loans and lack of lending despite low interest rates and lending profits reaching a record high.

Research from financial website Moneyfacts shows that mortgage profits have increased almost fourfold in recent months yet the cost for the consumer is also rising.

In a report it said those lenders' potential profit margins, that is the difference between the cost of borrowing money and the amount charges to customers, is the largest it has seen since it began keeping records in 1988.

Typically the profit margin used to be 0.8% on top of the mortgage product but now it is 3.1%, explained Michelle Slade from Moneyfacts. She also revealed that a typical two year mortgage deal now costs 5.17%, up from 4.65% three months ago. Yet the current Bank of England base rate is just 0.5%, the lowest for hundreds of years.

The British Bankers Association defended the rise in the cost of borrowing. Its chief executive Angela Knight said that banks are facing higher costs and also are more exposed to the risk of defaults and repossessions.

Knight also said that banks had less money available to them as the wholesale supply of cash was 'far less' than in recent months.

Meanwhile estate agents across the UK are reporting that home buyers who have been offered mortgages are then not given access to the money when they need it. Peter Bolton King, chief executive of the National Association of Estate Agents claimed that banks are limiting the amount they are prepared to lend on any given day and this means buyers are ready to complete and then find the money has not gone into the right account.

'Our research has shown that currently one in four people recognise the banks as the biggest barrier to the property market at present. When prospective buyers are granted a mortgage in principle, they are then faced with further difficulties in actually getting the banks to release the funds,' he explained.

'A number of members across the country are reporting complications for home buyers who have mortgage approval but are unable to obtain the funds from the lenders. We believe this is due to the banks limiting the amount they are prepared to lend on any given day,' he added.

Mortgage advisers confirmed that funds can dry up within an hour of banks opening their doors, meaning any potential buyers making inquiries after 10am are left disappointed.

'It used to be just those with a poor credit history would find it difficult to obtain a mortgage. But now there's no guarantee that five-star borrowers will get a deal because lenders are restricting the amount of funding available,' said Paul Welch, of