David Prosser: The true cost of making mortgage loans

Outlook The Council of Mortgage Lenders has responded robustly to figures published today by Which?, the consumer group, which suggest its members have been raising margins during the time at which the base rate has remained at an unprecedented 0.5 per cent.

The CML doesn't dispute Which?'s claim that mortgage rates do not fully reflect that low, or that some lenders have been increasing the cost of borrowing. It quite rightly points out that what mortgage lenders charge in the end reflects the cost of funding advances – and that since the credit crisis, this cost has been much less closely correlated with the Bank of England's base rate.

The extreme low in base rates we have seen over the past 18 months is one result of the crisis. Other results, the CML says, include shortages of wholesale funding, new and tougher rules about banks' capital and liquidity, pressure on lenders not to repossess homes, and the demands of inflation-hit savers.

All of this is true, of course, and while interest rates may not be as low as Which? would like, the reduced cost of servicing home loans has ensured that this recession has not been accompanied by the spikes in arrears and repossessions seen in previous downturns.

Still, we are now moving towards a time when base rates will begin to rise once more. When they do, it would be unfortunate if the link between the cost of funding mortgages and base rates were magically restored all of a sudden.