Consumer group, Which? is calling for the government to protect homeowners by forcing lenders who are taking part in the Funding for Lending Scheme (FLS) to reduce fees and have tougher regulations enforced on them.
Its report found that there is widespread concern that the cheaper funding being accessed by lenders through the FLS is not being passed onto each category of homeowner or potential mortgage holder.
Anecdotal evidence suggests that the cheaper lending is being reserved for mortgage deals available to borrowers with a high loan-to-value (LTV) ratio. The majority of cheap new mortgage deals are for homeowners with a 40 per cent deposit.
This means that more than half (54 per cent) of people under 30 are worried that they will never get on the property ladder.
Which? wants the benefits of the FLS to be more evenly spread out.
Which? has published its Quarterly Consumer Report which reveals that 26 per cent of homeowners with mortgages are scared that there home may be repossessed. It wants clearer rules to ensure that lenders pass on the cheaper funding benefits through the FLS to consumers.
Under FLS banks can borrow money at a cheaper rate than is available through the wholesale markets on condition that they pass on the savings to consumers.
The report shows that there is an increasing gap between older homeowners with plenty of equity in their property and younger property owners, aged 30-49, who would struggle if there was an increase in base rate and first-time buyers who cannot get onto the property ladder.
The report shows that many people aged 30-49 see themselves as “mortgage prisoners” and having got a mortgage in the good times, when credit was more easily available, now find themselves unable to remortgage to a competitive deal at the same time as many mortgage lenders are pushing up the cost of their standard variable mortgage rates.
Which? says that the FLS was designed to help these homeowners and safeguards should be included to make sure that the scheme works for the people it was designed for. It also wants more transparency to reveal how lenders are passing on FLS funds.
Which? executive director Richard Lloyd said: "The housing market is failing not just one but two generations of consumers, with many mortgage prisoners trapped on their current deal and young people excluded from the housing market altogether.”
This group of people has the highest weekly housing costs at an average of £186 compared to the national average of £135.
The report says that home ownership is increasingly out of reach for young people. Rising rents are making it harder for potential first-time buyers to save for a deposit and the average deposit required has doubled in the five years since the credit crunch from ten per cent to 20 per cent of the purchase price of the property.
Lenders have also raised mortgage fees, even as interest rates are historically low because base rate has remained at 0.5 per cent for nearly four years now.
Mortgage lenders have found ways to keep their profits coming in through higher arrangement fees. Which? reports that in the 18 months to August 2012, arrangement fees have risen by 60 per cent to an average of £1,472. It wants new rules to reverse this trend.
Which? says that lenders need to pass on the benefits of cheaper lending that they are able to access through FLS to the people it is designed for, first-time buyers and homeowners with little equity in their properties.
Which? says that more than 1.6 million people with mortgages have been hot by increases to their lenders standard variable rates. This means they are paying a combined £400 million a year extra even though there has been no change in base rate since March 2009.
Richard Lloyd added: "The Chancellor must put tougher obligations on banks that get cheap finance through the Government's Funding for Lending Scheme so that more is done to help those who are struggling through no fault of their own, and especially to ensure that mortgage prisoners and first time buyers can benefit from lower borrowing costs."