This week Tesco Bank announced that it was leaving the mortgage market, a decision it made partly due to the intense competition within the mortgage sector. Soon after this announcement, Nationwide Building Society revealed that its profits have fallen year-on-year by 19%, which it suggests is partly due to fierce competition. While the news that Tesco Bank is pulling out of the sector means that there will be less choice for mortgage borrows and will reduce competition, this news does show that the mortgage market is highly competitive at the moment and there are some great rates available to borrowers.
Nationwide Building Society has suggested that intense mortgage competition and increased spending on digital banking services have led to its profits falling by 19% to £788m for the year to 4 April.
The building society saw a drop in profits despite its net mortgage lending rising to £8.6bn from £5.8bn the previous year. Intense competition has likely led to the fall in mortgage rates year-on-year, which consequently could have affected mortgage lending profits. Along with Nationwide reporting a drop in profits, the competitive mortgage market is one factor that could have contributed to Tesco Bank and the AA leaving the sector altogether.
Tesco Bank has announced that it will not offer any new mortgages and is actively looking for options to sell its existing mortgage portfolio; a decision it has made due to challenging market conditions.
Tesco Bank started offering mortgages in 2012 and currently serves over 23,000 customers with total lending balances of £3.7bn. Moneyfacts.co.uk research has found that it currently offers 77 mortgage products, all of which are fixed-term products spread across 75% - 95% loan-to-value (LTV) tiers.
This decision by Tesco Bank is not good news for consumers as it means that there will be less competition within the market and less choice. Despite this, the fixed rate mortgage market remains highly competitive and there are still some very competitive fixed rate mortgages available for borrowers at a range of LTVs. In addition to this, even with Tesco Bank no longer offering new mortgages, this competition within the fixed-rate mortgage market is expected to continue.
Darren Cook, finance expert at Moneyfacts, said: “It is sad news when a provider decides to leave the mortgage market as this clearly partially reduces customer choice and interest rate competition. First-time buyers may especially miss Tesco Bank’s products as it offered a 95% loan-to-value mortgage, giving those with only a 5% deposit the chance to get onto the property ladder. Rates in the fixed rate mortgage market have reduced significantly over time and it is clear that margins – especially at the lower LTV tiers – are narrow, with little margin to cut them much further.”
Commenting on Tesco Bank’s decision, Gerry Mallon, chief executive of Tesco Bank, said: “In recent years, challenging market conditions have limited profitable growth opportunities. Our focus is on how we best serve Tesco customers and align our resources effectively to their needs while ensuring that our offer remains sustainable in the long term.
“To that end, we have made the strategic decision to focus on serving a broader range of customers in more specific areas, which means moving away from our mortgage offer. We have therefore chosen to cease lending to new customers and announce our intention to explore a sale of our portfolio. Our priority in any sale is to complete a commercially acceptable transaction with a purchaser who will continue to serve our customers well.”
While the interest rate on any mortgage might be the first thing to come to mind when searching for a deal, borrowers should also make time to consider those with an incentive package. Thankfully, the number of deals that offer cashback, a free valuation or free legal fees have risen year-on-year, as mortgage lenders look to entice borrowers with additional perks rather than rates alone.
23rd May 2019
The Moneyfacts Weekly Product News is a round-up of the latest products or rate changes to hit the consumer finance market over the past seven days. The deals are available right now, but may be subject to change.
The Moneyfacts Weekly Product News is a round-up of the latest products or rate changes to hit the consumer finance market this week.
21st May 2019
While the interest rate on any mortgage might be the first thing to come to mind when searching for a deal, incentives are always worth considering - and happily, the number of deals that offer these perks is on the rise.
While the interest rate on any mortgage might be the first thing to come to mind when searching for a deal, incentives are always worth considering.
17th May 2019
This week has seen only a little movement in terms of the best mortgage rates available. In the two-year fixed rate mortgage chart, the best rate being offered was still 1.54%, while...
This week has seen only a little movement in terms of the best mortgage rates available...
13th May 2019
Fixed rate mortgages tend to be the product of choice for the majority of borrowers, but the latest Moneyfacts UK Mortgage Trends Treasury Report may cause some to think again...
Fixed rate mortgages tend to be the product of choice for the majority of borrowers, but the latest Moneyfacts UK Mortgage Trends Treasury Report may cause some to think again