In its latest Financial Stability Report the Bank of England says that wholesale funding costs will rise next year, leading to higher mortgage rates for borrowers.

The Report states that ‘at the beginning of the financial crisis, when funding costs rose sharply, banks were relatively slow in updating the price of new mortgages and the residual remained negative for around a year. This suggests it may be during 2012 that any significant increase in banks’ lending rates occurs.’

It then adds: ‘While credit availability was reported to have increased slightly in 2011 Q3, particularly for high LTV mortgages, subsequent market intelligence suggests that, as with corporate lending, some banks may be starting to pass on higher funding costs to mortgage customers through higher prices.’

The report then states that the spreads between funding costs and pricing has grown making mortgage lending less profitable since 2009 and that lenders with a higher stock of retail deposits from savers may be more insulated from the marginal cost of wholesale funding.