The reduction in the big banks' wholesale funding costs will give them scope to make out-of-cycle cuts to mortgage interest rates of about 10 basis points, according to JP Morgan research.JP Morgan banking analyst Scott Manning said that out-of-cycle cuts were more likely next year than this year, but there was no certainty that the banks would pass on any of the benefit of lower funding costs to borrowers.Speaking at a mortgage market briefing yesterday, Manning said the big banks would weigh up whether to pass on improvements in wholesale funding costs to borrowers. Their other options would be to invest in lengthening the duration of their wholesale funding, to offer higher deposit rates, or to allow the higher margins to flow through to the bottom line.JP Morgan has calculated that, if current wholesale rates hold, the reduction in average funding costs for the big banks will be around 24 or 25 basis points over the next three years.This would give them the scope to cut variable mortgage rates by 10 basis points. Alternately, if they hold on to the gains, their net interest margins would increase by four or five basis points and their cash earnings by around 2.5 or three per cent.Manning said: "The spot cost of wholesale funding is now lower than the average of the portfolio for the first time since the GFC. This is positive for the banks' outlook."But the cost of funds has been high for some time. It will take time for the average cost to come down."Westpac, for example, has a $300 billion mortgage book, but rolls over only about $20 billion to $25 billion of funding each year.Manning said: "We don't see any net benefit in terms of funding costs this year. The big banks will be rolling over like for like in cost terms. "There [will be]… much more scope next year, when they will be rolling over funding from 2009/10 that was priced at margins of 140 or 150 basis points. The price on new funding is 100 basis points."