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Tesco halts mortgage lending – the implications

By Ryan Bembridge

Published: 7th June 2019 Last updated: 7th June 2019
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A major lender has pulled out of the mortgage market in Tesco Bank.

Tesco has stopped new lending and is exploring whether to sell its book of mortgage loans. This means that if you’re one of 23,000 Tesco Bank mortgage customers the loan may end up being managed by another lender.

Tesco has been one of the most competitively priced lenders on the market in the past few years, which has been part of the problem. The fierce price war means it likely hasn’t been making enough money to satisfy the powers that be at the retail group.

As the Telegraph reflected soon after the news, ‘the good times may be over for the tens of thousands of homeowners with a Tesco mortgage’.

How this impacts customers

Tesco has assured customers that current loans will continue on the same terms, adding that customers don’t need to take any action due to the news.

If you’re on a Tesco standard variable rate it’s worth remortgaging, yet this would have been the case even before the news, as there are cheaper options available.

If you have a fixed rate mortgage with Tesco it seems wise to wait it out before considering remortgaging. Otherwise, you would be liable to pay expensive Early Repayment Charges.

A challenging backdrop

Those following the mortgage market this year won’t be too surprised that a lender has pulled out of the market.

Owing to the Brexit uncertainty the market has been dampened down this year with less purchase activity, with many lenders describing conditions as ‘challenging’. Indeed, the word ‘challenging’ is becoming something of a cliché.

A number of lenders are competing for a small proportion of business, meaning that the powers behind Tesco Bank clearly decided there was more money to be made elsewhere.

Tesco isn’t the first to pull out of the market this year, though it’s arguably the biggest brand.

This year other lenders have pulled out of the market in Secure Trust Bank, Bank of Ireland brand AA Mortgages and Magellan Homeloans.

Tesco halts mortgage lending

There’s still a choice

Less competition could, in theory, result in some modest mortgage rate increases.

Indeed, Tesco’s absence means there’s one less competitively priced mortgage lender to choose from.

However, there are still a number of competitively priced options available – and lenders coming and going is something that’s always happened in the mortgage market.

This isn’t a crisis

Comparisons with the troubled mortgage lenders faced owing to the global financial crisis a decade ago are wide of the mark.

Indeed, rather than it being a case of lenders losing money, the reality is some of them are deciding they can make more in other areas.

That was the case with Secure Trust Bank, though like Tesco it was a lender that was known for its activities in other areas, like savings and business finance.

It’s been a tough year for mortgage lenders and it’s unfortunate that another one has decided to close its doors.

However it’s not the end of the world – and there are plenty still available for you and me.

 

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