Britain's biggest banks have been accused of keeping mortgage repayments artificially high to repair their battered balance sheets after the cost of wholesale mortgage funding fell to its lowest level for five years.

The cost of borrowing on wholesale money markets to fund fixed-rate mortgages is at its cheapest since September 2003, but lenders have not passed on the full benefit to customers.

Borrowers are being forced to pay hundreds of pounds more for home loans than the last time the money markets touched this level.

Alliance & Leicester is the latest lender to make cuts to fixed-rate deals, by up to 0.35 percentage points. Last week Royal Bank of Scotland cut fixed rates by up to 0.6 percentage points, and experts expect other lenders, including Abbey, to announce similar cuts in the forthcoming days after a continuous month-long decline in two year swaps.

The two-year swap rate was at 4.28 per cent yesterday, down from a peak of 6.48 per cent high in June.

Melanie Bien, director of Savills Private Finance, the broker, said: "I doubt we will see a return to those cheap fixes because lenders simply do not need to be as competitive as in the past. Banks and building societies are more interested in margin than market share and will continue to offer rates that are quite a bit higher than in the past."

When wholesale borrowing was last at this level, the best-buy two year fix was from Britannia Building Society, with a rate of 3.64 per cent and a fee of £299 on loans up to 95 per cent of a property's value. Monthly repayments were £ 455 on a £150,000 loan.

The best-buy two-year fixed rate today is from Market Harborough Building Society, at 5.49 per cent and repayments are £200 more expensive on a £150,000 mortgage compared to 2003.

Ray Boulger, of John Charcol, the broker, said: "There is a wide margin between wholesale borrowing costs and mortgage interest rates across the market because lenders have been forced to use retail deposits to fund new business.

"Most banks and building societies want to reduce lending, nearly all are lending far less than they did last year and there is little competition in the market."

Borrowers on variable rates are also not benefiting from rate cuts providing further evidence that lenders are protecting profit margins at the expensive of borrowers. Half of mortgage lenders have failed to pass on the recent base rate cut to borrowers on variable rates, according to Moneyfacts.co.uk, the financial website.

To make matters worse, Moneyfacts warned that there was "a strong indication that the majority of these have no intention" of reducing their variable rates because they "are simply unable to cut rates further".

Darren Cook, mortgage expert at Moneyfacts.co.uk, said: "Base rate is expected to fall again next week and we could have a situation where even less lenders choose to pass on a benefit to their customers."

Tracker deals, which are pegged to the base rate, are currently at a similar level to this time last year, despite the fact that the base rate is now 1.25 percentage points lower. Some lenders have actually increased their tracker rates in the last month.

Michelle Slade, analyst at Moneyfacts.co.uk, said: "Lenders are factoring in a much bigger margin for risk than ever before and as a result mortgage rates remain high".