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.
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, with the figures showing that the average two-year variable tracker mortgage rate has fallen substantially in the last month.
The average now stands at 2.02%, a drop of 0.08% from April (when it stood at 2.10%) and down 0.15% from the rate seen in September last year, a month after the Bank of England base rate increased to 0.75%. Given that tracker mortgages typically "track" base rate, the latest reductions may be particularly surprising given that base rate hasn't changed in the months since.
Further research shows that there are currently 203 variable tracker rate mortgages available, an increase of 18 products from last month (185). Of those currently on offer, 123 products are available to borrowers who require a maximum loan-to-value (LTV) of 75% and below, while the remaining 80 products are available to borrowers who require a mortgage of between 80% LTV and 95% LTV, offering plenty of choice for all sectors of the market.
|Two-year variable tracker rate mortgages||Sep-18||Apr-19||May-19|
|Products at 75% LTV and below||120||104||123|
|Products at 80% LTV and above||86||81||80|
|Total number of product available||206||185||203|
"It appears that the increasing number of products this month, and subsequent intensifying competition, has driven the average two-year variable tracker rate down," said Darren Cook, finance expert at Moneyfacts.co.uk. This arguably goes against recent trends, as attention has up until now been more focused on driving rates down in the fixed sector of the market, signalling a potential change of direction among providers.
There are wide variations depending on loan-to-value, too, with it often possible to find rates that are far lower than the average – and they typically beat fixed rates as well. "As expected, the best two-year variable tracker rates can be found at a low-risk tier of 60% LTV, where the average rate currently stands at 1.72%, which is 0.30% below the overall average two-year variable tracker rate of 2.02%," said Darren. "In comparison, the average two-year fixed mortgage rate at 60% LTV is currently 1.90%, which is 0.18% higher than its variable counterpart average.
"Of course, it is to be expected that the average fixed rate will likely be greater than that of the average variable rate, as borrowers pay more for the certainty of monthly payments with a fixed deal. The amount of interest a borrower is required to pay monthly on a variable tracker rate mortgage could of course change over time, but any fluctuations in rate are likely to be linked to external factors such as the Bank of England base rate – and markets are forecasting just a single interest rate increase by 2021."
However, it can't be denied that with current economic conditions so unpredictable, this timescale may shorten, and variable mortgage rates could increase sooner as a result. Therefore, a variable rate of interest may not suit those who are risk-averse – but it all comes down to personal choice. Ultimately, those considering a variable rate tracker mortgage should always factor in any rate rises that could affect whether they can afford the monthly repayments for the length of their term, so as to avoid any nasty surprises later on.
The landscape of buy-to-let has changed dramatically in recent years, with various Government interventions arguably making it more difficult for landlords to make a profit – and causing some to look at other ways of operating (as we'll discuss more below). Yet those seeking real returns from their property portfolios may still be able to find them, but for many, it all comes down to one important factor – location.
That's according to the latest Landbay Rental Index, which revealed that although the average rent for a UK property grew by 0.96% in the year to April, far better rental growth could be achieved in certain locations, particularly by looking beyond the former hotspot of London and going north instead.
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
10th May 2019
The landscape of buy-to-let has changed dramatically in recent years, with various Government interventions arguably making it more difficult for landlords to make a profit
The landscape of buy-to-let has changed dramatically in recent years, with various Government interventions arguably making it more difficult for landlords to m