By By Myra Butterworth, Personal Finance Correspondent Published: 11:10AM GMT 31 Dec 2009  Exclusive research for The Daily Telegraph reveals 2009 was the year when banks looked to repair their balance sheets at the cost of their customers.  Experts described the shift as the new age of the mortgage market with customers paying over the odds for a mortgage.  Darren Cook, of personal finance website Moneyfacts, said: “This time last year, we witnessed absolute chaos within the mortgage market and lenders had no idea which way to turn when pricing their mortgage products.  “The bad news was that lenders chose to push rates up in an attempt, among other things, to start to repair their balance sheets.”  Lenders increased the margin on the average two year fixed rate home loan from 2.87 per cent at the beginning of the year to 3.05 per cent this month, according to Moneyfacts.  At the same time, swap rates – which banks use to price their fixed rate deals – have dropped from 2.56 per cent to 1.81 per cent over the same period.  Mr Cook added: “The margins between the money market rates and mortgage rates are still wide. However, the true test to see if wider margins are ‘a new age of the mortgage market’ will be when the Bank of England decides to increase the Bank Rate and what effect this will have on new mortgage rates.”  The increase in profit margins during the past year comes despite a drop in the cost of the average two year fixed rate mortgage, from 5.43 per cent at the beginning of the year to 4.86 per cent this month.  Banks have lowered mortgage rates and insist they are lending again after mortgage approvals almost came to a standstill after the economic crisis last year.  But latest figures from the Council of Mortgage Lenders suggested lending remains 14 per cent lower than a year ago.  It dropped to £12 billion in November, down 10 per cent on the previous month and a fall of 14 per cent on the same period last year. It had climbed in October and November, according to the Council of Mortgage Lenders.  A spokesman for the CML said: “Mortgage pricing will not return to the spreads that characterised the pre-crunch era, but both criteria and pricing on new business are beginning to ease, in line with the gradual thaw in funding market conditions.”  The British Bankers’ Association said the costs customers pay reflects the amount that banks themselves must pay for funds on the money markets.
Banks have been accused of profiteering as new figures show they increased    their profit margins on mortgages even though their wholesale costs nearly    halved this year.