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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.”
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